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Is Duluth Holdings Inc. (DLTH) Going to Burn These Hedge Funds?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on September 30th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Duluth Holdings Inc. (NASDAQ:DLTH) based on those filings.

Duluth Holdings Inc. (NASDAQ:DLTH) shareholders have witnessed a decrease in hedge fund interest lately. Our calculations also showed that DLTH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

COATUE MANAGEMENT

Philippe Laffont of Coatue Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to check out the new hedge fund action surrounding Duluth Holdings Inc. (NASDAQ:DLTH).

Hedge fund activity in Duluth Holdings Inc. (NASDAQ:DLTH)

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DLTH over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Duluth Holdings Inc. (NASDAQ:DLTH) was held by Millennium Management, which reported holding $4.6 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $3.6 million position. Other investors bullish on the company included Citadel Investment Group, Marshall Wace, and Coatue Management. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Duluth Holdings Inc. (NASDAQ:DLTH), around 0.08% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to DLTH.

Due to the fact that Duluth Holdings Inc. (NASDAQ:DLTH) has faced a decline in interest from hedge fund managers, we can see that there was a specific group of hedge funds who sold off their entire stakes last quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management cut the largest investment of the 750 funds tracked by Insider Monkey, valued at close to $1.6 million in stock. Mike Vranos’s fund, Ellington, also sold off its stock, about $1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut 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. These stocks are USD Partners LP (NYSE:USDP), Allot Ltd. (NASDAQ:ALLT), IDT Corporation (NYSE:IDT), and Territorial Bancorp Inc (NASDAQ:TBNK). This group of stocks’ market valuations resemble DLTH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
USDP 3 3292 0
ALLT 9 64237 1
IDT 11 39665 -2
TBNK 4 23620 0
Average 6.75 32704 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $13 million in DLTH’s case. IDT Corporation (NYSE:IDT) is the most popular stock in this table. On the other hand USD Partners LP (NYSE:USDP) is the least popular one with only 3 bullish hedge fund positions. Duluth Holdings Inc. (NASDAQ:DLTH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on DLTH, though not to the same extent, as the stock returned 8.8% during the first two months of the fourth quarter and outperformed the market as well.

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

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