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Hedge Funds Have Never Been This Bullish On Duluth Holdings Inc. (DLTH)

Nina Todic

The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Duluth Holdings Inc. (NASDAQ:DLTH) from the perspective of those elite funds.

Duluth Holdings Inc. (NASDAQ:DLTH) was in 12 hedge funds' portfolios at the end of March. DLTH shareholders have witnessed an increase in enthusiasm from smart money recently. There were 8 hedge funds in our database with DLTH holdings at the end of the previous quarter. Our calculations also showed that dlth isn't among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

We're going to take a peek at the latest hedge fund action surrounding Duluth Holdings Inc. (NASDAQ:DLTH).

What have hedge funds been doing with Duluth Holdings Inc. (NASDAQ:DLTH)?

At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DLTH over the last 15 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with DLTH Positions

The largest stake in Duluth Holdings Inc. (NASDAQ:DLTH) was held by Skylands Capital, which reported holding $2.3 million worth of stock at the end of March. It was followed by Venator Capital Management with a $2.2 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and AQR Capital Management.

As one would reasonably expect, specific money managers have been driving this bullishness. Venator Capital Management, managed by Brandon Osten, assembled the most outsized position in Duluth Holdings Inc. (NASDAQ:DLTH). Venator Capital Management had $2.2 million invested in the company at the end of the quarter. Cliff Asness's AQR Capital Management also made a $0.7 million investment in the stock during the quarter. The other funds with brand new DLTH positions are Mike Vranos's Ellington, Jim Simons's Renaissance Technologies, and Paul Marshall and Ian Wace's Marshall Wace LLP.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Duluth Holdings Inc. (NASDAQ:DLTH) but similarly valued. We will take a look at Cara Therapeutics, Inc. (NASDAQ:CARA), Seacor Holdings, Inc. (NYSE:CKH), Ruth's Hospitality Group, Inc. (NASDAQ:RUTH), and Meta Financial Group Inc. (NASDAQ:CASH). This group of stocks' market caps match DLTH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CARA,8,16562,-1 CKH,11,122642,-5 RUTH,15,64794,-2 CASH,12,82203,-1 Average,11.5,71550,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $72 million. That figure was $11 million in DLTH's case. Ruth's Hospitality Group, Inc. (NASDAQ:RUTH) is the most popular stock in this table. On the other hand Cara Therapeutics, Inc. (NASDAQ:CARA) is the least popular one with only 8 bullish hedge fund positions. Duluth Holdings Inc. (NASDAQ:DLTH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately DLTH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DLTH were disappointed as the stock returned -41.4% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

Disclosure: None. This article was originally published at Insider Monkey.

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