Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Deckers Outdoor Corporation (NYSE:DECK) and see how the stock is affected by the recent hedge fund activity.
Deckers Outdoor Corporation (NYSE:DECK) was in 25 hedge funds’ portfolios at the end of June. DECK investors should be aware of a decrease in support from the world’s most elite money managers of late. There were 29 hedge funds in our database with DECK holdings at the end of the previous quarter. Our calculations also showed that DECK isn’t among the 30 most popular stocks among hedge funds.
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.
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 take a gander at the key hedge fund action encompassing Deckers Outdoor Corporation (NYSE:DECK).
What have hedge funds been doing with Deckers Outdoor Corporation (NYSE:DECK)?
Heading into the third quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DECK over the last 16 quarters. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in Deckers Outdoor Corporation (NYSE:DECK), which was worth $232.6 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $70 million worth of shares. Moreover, Marshall Wace LLP, Arrowstreet Capital, and Citadel Investment Group were also bullish on Deckers Outdoor Corporation (NYSE:DECK), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Deckers Outdoor Corporation (NYSE:DECK) has experienced falling interest from the smart money, it’s safe to say that there is a sect of hedgies that elected to cut their positions entirely in the second quarter. It’s worth mentioning that Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital said goodbye to the biggest position of all the hedgies tracked by Insider Monkey, worth an estimated $8.3 million in stock, and Sander Gerber’s Hudson Bay Capital Management was right behind this move, as the fund dropped about $3.9 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 4 funds in the second quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Deckers Outdoor Corporation (NYSE:DECK) but similarly valued. These stocks are GW Pharmaceuticals plc (NASDAQ:GWPH), Sinclair Broadcast Group, Inc. (NASDAQ:SBGI), Ashland Global Holdings Inc. (NYSE:ASH), and ViaSat, Inc. (NASDAQ:VSAT). This group of stocks’ market values resemble DECK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GWPH | 16 | 442454 | -7 |
| SBGI | 36 | 584117 | 8 |
| ASH | 31 | 1316973 | 1 |
| VSAT | 28 | 2028094 | 6 |
| Average | 27.75 | 1092910 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1093 million. That figure was $611 million in DECK’s case. Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) is the most popular stock in this table. On the other hand GW Pharmaceuticals plc (NASDAQ:GWPH) is the least popular one with only 16 bullish hedge fund positions. Deckers Outdoor Corporation (NYSE:DECK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately DECK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DECK investors were disappointed as the stock returned -16.3% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks (view the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019.
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.
