Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Deckers Outdoor Corp (NASDAQ:DECK).
Is Deckers Outdoor Corp (NASDAQ:DECK) a good investment now? Investors who are in the know are becoming hopeful. The number of bullish hedge fund positions increased by 14 lately. Our calculations also showed that DECK 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). DECK was in 43 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 29 hedge funds in our database with DECK positions at the end of the previous quarter.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s view the fresh hedge fund action surrounding Deckers Outdoor Corp (NASDAQ:DECK).
What have hedge funds been doing with Deckers Outdoor Corp (NYSE:DECK)?
At the end of the fourth quarter, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 48% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in DECK a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in Deckers Outdoor Corp (NYSE:DECK) was held by AQR Capital Management, which reported holding $169.8 million worth of stock at the end of September. It was followed by Samlyn Capital with a $97 million position. Other investors bullish on the company included Junto Capital Management, Marshall Wace LLP, and Shellback Capital. In terms of the portfolio weights assigned to each position Stormborn Capital Management allocated the biggest weight to Deckers Outdoor Corp (NYSE:DECK), around 8.44% of its 13F portfolio. Woodson Capital Management is also relatively very bullish on the stock, designating 4.79 percent of its 13F equity portfolio to DECK.
Now, key money managers have jumped into Deckers Outdoor Corp (NYSE:DECK) headfirst. Samlyn Capital, managed by Robert Pohly, established the most valuable position in Deckers Outdoor Corp (NYSE:DECK). Samlyn Capital had $97 million invested in the company at the end of the quarter. James Parsons’s Junto Capital Management also made a $47.5 million investment in the stock during the quarter. The other funds with brand new DECK positions are James Woodson Davis’s Woodson Capital Management, Steven Boyd’s Armistice Capital, and Renaissance Technologies.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Deckers Outdoor Corp (NYSE:DECK) but similarly valued. These stocks are Shell Midstream Partners LP (NYSE:SHLX), Tempur Sealy International Inc. (NYSE:TPX), Envista Holdings Corporation (NYSE:NVST), and Tetra Tech, Inc. (NASDAQ:TTEK). This group of stocks’ market caps match DECK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SHLX | 8 | 38182 | 1 |
| TPX | 42 | 1239067 | 11 |
| NVST | 42 | 1281321 | 21 |
| TTEK | 23 | 103073 | 2 |
| Average | 28.75 | 665411 | 8.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $665 million. That figure was $690 million in DECK’s case. Tempur Sealy International Inc. (NYSE:TPX) is the most popular stock in this table. On the other hand Shell Midstream Partners LP (NYSE:SHLX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Deckers Outdoor Corp (NYSE:DECK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately DECK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DECK were disappointed as the stock returned -23.3% during the first two and a half months of 2020 (through March 25th) 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 among hedge funds as most of these stocks already outperformed the market in Q1.
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.
