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Were Hedge Funds Right About Dollar Tree, Inc. (DLTR)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Dollar Tree, Inc. (NASDAQ:DLTR) based on those filings.

Dollar Tree, Inc. (NASDAQ:DLTR) has experienced a decrease in hedge fund sentiment of late. Our calculations also showed that DLTR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.

Gabriel Plotkin Melvin Capital Management

Gabriel Plotkin of Melvin Capital Management

With all of this in mind we’re going to take a look at the key hedge fund action encompassing Dollar Tree, Inc. (NASDAQ:DLTR).

How have hedgies been trading Dollar Tree, Inc. (NASDAQ:DLTR)?

Heading into the first quarter of 2020, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DLTR over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

More specifically, Akre Capital Management was the largest shareholder of Dollar Tree, Inc. (NASDAQ:DLTR), with a stake worth $478.2 million reported as of the end of September. Trailing Akre Capital Management was Rivulet Capital, which amassed a stake valued at $177.6 million. Palestra Capital Management, Point72 Asset Management, and Melvin Capital Management 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 Rivulet Capital allocated the biggest weight to Dollar Tree, Inc. (NASDAQ:DLTR), around 15.73% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, setting aside 6.2 percent of its 13F equity portfolio to DLTR.

Judging by the fact that Dollar Tree, Inc. (NASDAQ:DLTR) has witnessed a decline in interest from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds that decided to sell off their entire stakes by the end of the third quarter. Intriguingly, Renaissance Technologies cut the largest stake of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $121.1 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also dropped its stock, about $90.4 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 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 Dollar Tree, Inc. (NASDAQ:DLTR) but similarly valued. We will take a look at American Water Works Company, Inc. (NYSE:AWK), Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), Corteva, Inc. (NYSE:CTVA), and ANSYS, Inc. (NASDAQ:ANSS). All of these stocks’ market caps are closest to DLTR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AWK 29 625913 -11
FMS 11 13249 6
CTVA 27 676056 -10
ANSS 33 1348315 0
Average 25 665883 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $666 million. That figure was $1620 million in DLTR’s case. ANSYS, Inc. (NASDAQ:ANSS) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Dollar Tree, Inc. (NASDAQ:DLTR) 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 gained 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately DLTR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DLTR were disappointed as the stock returned -17.7% during the four months of 2020 (through May 1st) 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 most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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