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Hedge Funds Aren’t Crazy About Duluth Holdings Inc. (DLTH)

In this article you are going to find out whether hedge funds think Duluth Holdings Inc. (NASDAQ:DLTH) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Duluth Holdings Inc. (NASDAQ:DLTH) has experienced a decrease in enthusiasm from smart money recently. Our calculations also showed that DLTH isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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’ 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 58 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.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the fresh hedge fund action encompassing Duluth Holdings Inc. (NASDAQ:DLTH).

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

Heading into the second quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DLTH over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Arrowstreet Capital held the most valuable stake in Duluth Holdings Inc. (NASDAQ:DLTH), which was worth $1.7 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $1.3 million worth of shares. Millennium Management, Renaissance Technologies, and Algert Coldiron Investors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Duluth Holdings Inc. (NASDAQ:DLTH), around 0.05% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, dishing out 0.005 percent of its 13F equity portfolio to DLTH.

Judging by the fact that Duluth Holdings Inc. (NASDAQ:DLTH) has experienced a decline in interest from hedge fund managers, logic holds that there were a few fund managers that decided to sell off their positions entirely last quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest position of the 750 funds monitored by Insider Monkey, comprising an estimated $3 million in stock. D. E. Shaw’s fund, D E Shaw, also cut its stock, about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 1 funds last quarter.

Let’s go over 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 Superior Group of Companies, Inc. (NASDAQ:SGC), Priority Technology Holdings, Inc. (NASDAQ:PRTH), Liquidity Services, Inc. (NASDAQ:LQDT), and Sierra Metals Inc. (NYSE:SMTS). All of these stocks’ market caps are similar to DLTH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SGC 3 2543 -1
PRTH 3 1111 0
LQDT 7 17843 -1
SMTS 1 181 -1
Average 3.5 5420 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.5 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $5 million in DLTH’s case. Liquidity Services, Inc. (NASDAQ:LQDT) is the most popular stock in this table. On the other hand Sierra Metals Inc. (NYSE:SMTS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Duluth Holdings Inc. (NASDAQ:DLTH) is more popular among hedge funds. 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 returned 12.2% in 2020 through June 17th but still managed to beat the market by 14.8 percentage points. Hedge funds were also right about betting on DLTH as the stock returned 83.5% so far in Q2 (through June 17th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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