We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Designer Brands Inc. (NYSE:DBI).
Is DBI a good stock to buy now? Designer Brands Inc. (NYSE:DBI) was in 13 hedge funds’ portfolios at the end of September. The all time high for this statistic is 29. DBI has seen a decrease in activity from the world’s largest hedge funds of late. There were 19 hedge funds in our database with DBI holdings at the end of June. Our calculations also showed that DBI isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
In today’s marketplace there are several metrics stock market investors can use to size up publicly traded companies. A duo of the less utilized metrics are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the best picks of the best fund managers can outclass the S&P 500 by a healthy margin (see the details here).
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 recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind we’re going to check out the recent hedge fund action regarding Designer Brands Inc. (NYSE:DBI).
Do Hedge Funds Think DBI Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -32% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in DBI a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Masters Capital Management was the largest shareholder of Designer Brands Inc. (NYSE:DBI), with a stake worth $10.9 million reported as of the end of September. Trailing Masters Capital Management was Arrowstreet Capital, which amassed a stake valued at $7.1 million. Scion Asset Management, Renaissance Technologies, and D E Shaw 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 Scion Asset Management allocated the biggest weight to Designer Brands Inc. (NYSE:DBI), around 1.97% of its 13F portfolio. Pacifica Capital Investments is also relatively very bullish on the stock, earmarking 1.62 percent of its 13F equity portfolio to DBI.
Because Designer Brands Inc. (NYSE:DBI) has witnessed declining sentiment from hedge fund managers, we can see that there were a few funds who sold off their full holdings by the end of the third quarter. Interestingly, Chuck Royce’s Royce & Associates dumped the biggest investment of the 750 funds tracked by Insider Monkey, totaling about $3.2 million in stock. Cliff Asness’s fund, AQR Capital Management, also dropped its stock, about $0.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 6 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Designer Brands Inc. (NYSE:DBI) but similarly valued. We will take a look at Eros STX Global Corporation (NYSE:ESGC), Bonanza Creek Energy Inc (NYSE:BCEI), Granite Point Mortgage Trust Inc. (NYSE:GPMT), Kimball International Inc (NASDAQ:KBAL), Golden Entertainment Inc (NASDAQ:GDEN), Arrow Financial Corporation (NASDAQ:AROW), and BioSpecifics Technologies Corp. (NASDAQ:BSTC). This group of stocks’ market caps are similar to 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 11 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $49 million in DBI’s case. Kimball International Inc (NASDAQ:KBAL) is the most popular stock in this table. On the other hand Arrow Financial Corporation (NASDAQ:AROW) is the least popular one with only 3 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 43.7. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on DBI as the stock returned 58.6% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.