Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. NASDAQ and Russell 2000 indices were already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points in the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Duluth Holdings Inc. (NASDAQ:DLTH).
Is Duluth Holdings Inc. (NASDAQ:DLTH) a buy right now? The smart money is turning less bullish. The number of long hedge fund positions were trimmed by 2 recently. Our calculations also showed that dlth isn't among the 30 most popular stocks among hedge funds. DLTH was in 8 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 10 hedge funds in our database with DLTH positions at the end of the previous quarter.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to review the key hedge fund action surrounding Duluth Holdings Inc. (NASDAQ:DLTH).
What does the smart money think about Duluth Holdings Inc. (NASDAQ:DLTH)?
Heading into the first quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DLTH over the last 14 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Driehaus Capital held the most valuable stake in Duluth Holdings Inc. (NASDAQ:DLTH), which was worth $5.2 million at the end of the fourth quarter. On the second spot was Skylands Capital which amassed $2.4 million worth of shares. Moreover, Citadel Investment Group, D E Shaw, and Point72 Asset Management were also bullish on Duluth Holdings Inc. (NASDAQ:DLTH), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Duluth Holdings Inc. (NASDAQ:DLTH) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedgies that decided to sell off their entire stakes in the third quarter. Intriguingly, Brandon Osten's Venator Capital Management dumped the largest stake of all the hedgies monitored by Insider Monkey, valued at close to $2.8 million in stock. Mike Vranos's fund, Ellington, also sold off its stock, about $0.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Duluth Holdings Inc. (NASDAQ:DLTH). These stocks are Washington Trust Bancorp, Inc. (NASDAQ:WASH), National Presto Industries Inc. (NYSE:NPK), Forrester Research, Inc. (NASDAQ:FORR), and Independence Realty Trust Inc (NYSE:IRT). 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 WASH,6,24910,-2 NPK,13,94747,3 FORR,10,52714,1 IRT,9,50885,-2 Average,9.5,55814,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $13 million in DLTH's case. National Presto Industries Inc. (NYSE:NPK) is the most popular stock in this table. On the other hand Washington Trust Bancorp, Inc. (NASDAQ:WASH) is the least popular one with only 6 bullish hedge fund positions. Duluth Holdings Inc. (NASDAQ:DLTH) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately DLTH wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); DLTH investors were disappointed as the stock returned -34.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.