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Is Designer Brands Inc. (DBI) Going to Burn These Hedge Funds?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Designer Brands Inc. (NYSE:DBI) based on that data.

Designer Brands Inc. (NYSE:DBI) was in 21 hedge funds’ portfolios at the end of the first quarter of 2020. DBI has seen a decrease in activity from the world’s largest hedge funds lately. There were 22 hedge funds in our database with DBI positions at the end of the previous quarter. Our calculations also showed that DBI 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.

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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

COATUE MANAGEMENT

Philippe Laffont of Coatue Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the latest hedge fund action surrounding Designer Brands Inc. (NYSE:DBI).

How are hedge funds trading Designer Brands Inc. (NYSE:DBI)?

Heading into the second quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the fourth quarter of 2019. By comparison, 19 hedge funds held shares or bullish call options in DBI a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Is DBI A Good Stock To Buy?

The largest stake in Designer Brands Inc. (NYSE:DBI) was held by Royce & Associates, which reported holding $7.8 million worth of stock at the end of September. It was followed by Masters Capital Management with a $3.5 million position. Other investors bullish on the company included Skylands Capital, Renaissance Technologies, and Masters Capital Management. In terms of the portfolio weights assigned to each position Pacifica Capital Investments allocated the biggest weight to Designer Brands Inc. (NYSE:DBI), around 1.36% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, setting aside 0.61 percent of its 13F equity portfolio to DBI.

Since Designer Brands Inc. (NYSE:DBI) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few fund managers who were dropping their full holdings in the first quarter. It’s worth mentioning that George McCabe’s Portolan Capital Management cut the largest position of the 750 funds followed by Insider Monkey, totaling an estimated $6.7 million in stock. Richard SchimeláandáLawrence Sapanski’s fund, Cinctive Capital Management, also cut its stock, about $2.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds in the first quarter.

Let’s now take a look at 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 Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX), Star Group L.P. (NYSE:SGU), Rubius Therapeutics, Inc. (NASDAQ:RUBY), and Catchmark Timber Trust Inc (NYSE:CTT). This group of stocks’ market values match DBI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRNX 11 166354 -1
SGU 8 65781 1
RUBY 4 878 -1
CTT 11 41172 -4
Average 8.5 68546 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $29 million in DBI’s case. Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX) is the most popular stock in this table. On the other hand Rubius Therapeutics, Inc. (NASDAQ:RUBY) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Designer Brands Inc. (NYSE:DBI) 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 DBI as the stock returned 47.2% 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.