It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Dicks Sporting Goods Inc (NYSE:DKS).
Is Dicks Sporting Goods Inc (NYSE:DKS) ready to rally soon? The smart money is in an optimistic mood. The number of bullish hedge fund positions improved by 1 lately. Our calculations also showed that dks isn’t among the 30 most popular stocks among hedge funds. DKS was in 22 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 21 hedge funds in our database with DKS holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
Let’s go over the fresh hedge fund action encompassing Dicks Sporting Goods Inc (NYSE:DKS).
How are hedge funds trading Dicks Sporting Goods Inc (NYSE:DKS)?
Heading into the first quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DKS over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Cliff Asness’s AQR Capital Management has the number one position in Dicks Sporting Goods Inc (NYSE:DKS), worth close to $51 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is Tensile Capital, managed by Douglas Dossey and Arthur Young, which holds a $45.1 million position; 6.7% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism comprise D. E. Shaw’s D E Shaw, John Overdeck and David Siegel’s Two Sigma Advisors and Ken Griffin’s Citadel Investment Group.
Now, specific money managers have jumped into Dicks Sporting Goods Inc (NYSE:DKS) headfirst. PEAK6 Capital Management, managed by Matthew Hulsizer, assembled the biggest position in Dicks Sporting Goods Inc (NYSE:DKS). PEAK6 Capital Management had $1.7 million invested in the company at the end of the quarter. Steve Leonard’s Pacifica Capital Investments also made a $1.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Sander Gerber’s Hudson Bay Capital Management, Hoon Kim’s Quantinno Capital, and Matthew Tewksbury’s Stevens Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Dicks Sporting Goods Inc (NYSE:DKS) but similarly valued. These stocks are Merit Medical Systems, Inc. (NASDAQ:MMSI), Blackbaud, Inc. (NASDAQ:BLKB), Tech Data Corp (NASDAQ:TECD), and Proto Labs Inc (NYSE:PRLB). All of these stocks’ market caps resemble DKS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MMSI | 18 | 207217 | 6 |
| BLKB | 13 | 57776 | 0 |
| TECD | 23 | 191630 | 3 |
| PRLB | 10 | 20643 | 5 |
| Average | 16 | 119317 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $169 million in DKS’s case. Tech Data Corp (NASDAQ:TECD) is the most popular stock in this table. On the other hand Proto Labs Inc (NYSE:PRLB) is the least popular one with only 10 bullish hedge fund positions. Dicks Sporting Goods Inc (NYSE:DKS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on DKS, though not to the same extent, as the stock returned 22.7% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
