The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Designer Brands Inc. (NYSE:DBI) and determine whether the smart money was really smart about this stock.
Designer Brands Inc. (NYSE:DBI) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. Designer Brands Inc. (NYSE:DBI) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 29. There were 21 hedge funds in our database with DBI positions at the end of the first quarter. Our calculations also showed that DBI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s analyze the new hedge fund action regarding Designer Brands Inc. (NYSE:DBI).
Hedge fund activity in Designer Brands Inc. (NYSE:DBI)
At second quarter’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DBI over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Masters Capital Management, managed by Mike Masters, holds the number one position in Designer Brands Inc. (NYSE:DBI). Masters Capital Management has a $10.2 million position in the stock, comprising 1.1% of its 13F portfolio. Sitting at the No. 2 spot is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $7.1 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions contain Renaissance Technologies, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Pacifica Capital Investments allocated the biggest weight to Designer Brands Inc. (NYSE:DBI), around 2.01% of its 13F portfolio. Scion Asset Management is also relatively very bullish on the stock, earmarking 1.23 percent of its 13F equity portfolio to DBI.
Seeing as Designer Brands Inc. (NYSE:DBI) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there is a sect of funds that elected to cut their entire stakes heading into Q3. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dumped the biggest position of the 750 funds watched by Insider Monkey, valued at close to $1.7 million in stock, and Mike Vranos’s Ellington was right behind this move, as the fund sold off about $0.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks similar to Designer Brands Inc. (NYSE:DBI). These stocks are Turning Point Brands, Inc. (NYSE:TPB), Camtek LTD. (NASDAQ:CAMT), Syros Pharmaceuticals, Inc. (NASDAQ:SYRS), Aegion Corp (NASDAQ:AEGN), Playa Hotels & Resorts N.V. (NASDAQ:PLYA), Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), and TransMedics Group, Inc. (NASDAQ:TMDX). All of these stocks’ market caps resemble DBI’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.6 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $52 million in DBI’s case. Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) is the most popular stock in this table. On the other hand TransMedics Group, Inc. (NASDAQ:TMDX) is the least popular one with only 6 bullish hedge fund positions. Designer Brands Inc. (NYSE:DBI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DBI is 53.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately DBI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DBI were disappointed as the stock returned -19.8% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.