Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards Destination XL Group Inc (NASDAQ:DXLG) changed during the first quarter.
Destination XL Group Inc (NASDAQ:DXLG) has experienced a decrease in activity from the world's largest hedge funds recently. Our calculations also showed that DXLG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_262336" align="alignnone" width="600"] J. Carlo Cannell of Cannell Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's take a gander at the fresh hedge fund action surrounding Destination XL Group Inc (NASDAQ:DXLG).
What have hedge funds been doing with Destination XL Group Inc (NASDAQ:DXLG)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the second quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in DXLG a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Destination XL Group Inc (NASDAQ:DXLG) was held by Red Mountain Capital, which reported holding $13.6 million worth of stock at the end of September. It was followed by Cannell Capital with a $9.1 million position. Other investors bullish on the company included Prescott Group Capital Management, Roumell Asset Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Red Mountain Capital allocated the biggest weight to Destination XL Group Inc (NASDAQ:DXLG), around 12.02% of its 13F portfolio. Cannell Capital is also relatively very bullish on the stock, earmarking 2.97 percent of its 13F equity portfolio to DXLG.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified DXLG as a viable investment and initiated a position in the stock.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Destination XL Group Inc (NASDAQ:DXLG) but similarly valued. We will take a look at VBI Vaccines, Inc. (NASDAQ:VBIV), Selecta Biosciences, Inc. (NASDAQ:SELB), Postal Realty Trust, Inc. (NYSE:PSTL), and Iterum Therapeutics plc (NASDAQ:ITRM). This group of stocks' market caps match DXLG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VBIV,9,48310,6 SELB,9,14294,1 PSTL,7,20025,-2 ITRM,3,11366,0 Average,7,23499,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $31 million in DXLG's case. VBI Vaccines, Inc. (NASDAQ:VBIV) is the most popular stock in this table. On the other hand Iterum Therapeutics plc (NASDAQ:ITRM) is the least popular one with only 3 bullish hedge fund positions. Destination XL Group Inc (NASDAQ:DXLG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DXLG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DXLG investors were disappointed as the stock returned -26.6% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.