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

We at Insider Monkey have gone over 730 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 June 28th. In this article, we look at what those funds think of Dollar Tree, Inc. (NASDAQ:DLTR) based on that data.

Dollar Tree, Inc. (NASDAQ:DLTR) was in 49 hedge funds’ portfolios at the end of June. DLTR investors should pay attention to an increase in support from the world’s most elite money managers of late. There were 48 hedge funds in our database with DLTR positions at the end of the previous quarter. Our calculations also showed that DLTR isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

DLTR_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to analyze the fresh hedge fund action encompassing Dollar Tree, Inc. (NASDAQ:DLTR).

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

Heading into the third quarter of 2019, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DLTR over the last 16 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Clint Carlson, Carlson Capital

Of the funds tracked by Insider Monkey, Akre Capital Management, managed by Charles Akre, holds the number one position in Dollar Tree, Inc. (NASDAQ:DLTR). Akre Capital Management has a $546.2 million position in the stock, comprising 5.5% of its 13F portfolio. Sitting at the No. 2 spot is John Overdeck and David Siegel of Two Sigma Advisors, with a $252.1 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions comprise Renaissance Technologies, D. E. Shaw’s D E Shaw and Barry Lebovits and Joshua Kuntz’s Rivulet Capital.

Consequently, some big names were leading the bulls’ herd. Bloom Tree Partners, managed by Alok Agrawal, established the most outsized position in Dollar Tree, Inc. (NASDAQ:DLTR). Bloom Tree Partners had $35.4 million invested in the company at the end of the quarter. Oscar Hattink’s BlueDrive Global Investors also made a $27.5 million investment in the stock during the quarter. The other funds with brand new DLTR positions are Joel Greenblatt’s Gotham Asset Management, Clint Carlson’s Carlson Capital, and Matthew Knauer and Mina Faltas’s Nokota Management.

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. These stocks are T. Rowe Price Group, Inc. (NASDAQ:TROW), Ventas, Inc. (NYSE:VTR), Discover Financial Services (NYSE:DFS), and Waste Connections, Inc. (NYSE:WCN). This group of stocks’ market values match DLTR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TROW 30 330195 4
VTR 18 385834 -1
DFS 39 935868 3
WCN 26 429678 0
Average 28.25 520394 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $520 million. That figure was $2014 million in DLTR’s case. Discover Financial Services (NYSE:DFS) is the most popular stock in this table. On the other hand Ventas, Inc. (NYSE:VTR) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Dollar Tree, Inc. (NASDAQ:DLTR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on DLTR as the stock returned 6.3% during Q3 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.

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

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