Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Dollar General Corp. (NYSE:DG).
Is Dollar General Corp. (NYSE:DG) worth your attention right now? The smart money was selling. The number of long hedge fund positions fell by 7 lately. Dollar General Corp. (NYSE:DG) was in 45 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 67. Our calculations also showed that DG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 52 hedge funds in our database with DG positions at the end of the first quarter.
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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a gander at the recent hedge fund action regarding Dollar General Corp. (NYSE:DG).
Do Hedge Funds Think DG Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DG over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, BlueSpruce Investments was the largest shareholder of Dollar General Corp. (NYSE:DG), with a stake worth $625.7 million reported as of the end of June. Trailing BlueSpruce Investments was Arrowstreet Capital, which amassed a stake valued at $142.1 million. Citadel Investment Group, Alkeon Capital Management, and AQR 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 BlueSpruce Investments allocated the biggest weight to Dollar General Corp. (NYSE:DG), around 11.41% of its 13F portfolio. Lionstone Capital Management is also relatively very bullish on the stock, designating 7.29 percent of its 13F equity portfolio to DG.
Due to the fact that Dollar General Corp. (NYSE:DG) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of fund managers who were dropping their full holdings heading into Q3. Interestingly, Aaron Cowen’s Suvretta Capital Management sold off the largest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $212.1 million in stock. Steve Cohen’s fund, Point72 Asset Management, also sold off its stock, about $98.9 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 7 funds heading into Q3.
Let’s check out hedge fund activity in other stocks similar to Dollar General Corp. (NYSE:DG). These stocks are Ferrari N.V. (NYSE:RACE), Newmont Corporation (NYSE:NEM), Pinterest, Inc. (NYSE:PINS), Keurig Dr Pepper Inc. (NASDAQ:KDP), The Kraft Heinz Company (NASDAQ:KHC), Prudential Public Limited Company (NYSE:PUK), and Southern Copper Corporation (NYSE:SCCO). This group of stocks’ market caps resemble DG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RACE | 27 | 992822 | 1 |
| NEM | 55 | 1255898 | 12 |
| PINS | 63 | 2915471 | -20 |
| KDP | 28 | 1197414 | -2 |
| KHC | 33 | 13577456 | 0 |
| PUK | 4 | 9037 | 2 |
| SCCO | 23 | 552258 | -4 |
| Average | 33.3 | 2928622 | -1.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.3 hedge funds with bullish positions and the average amount invested in these stocks was $2929 million. That figure was $1647 million in DG’s case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 4 bullish hedge fund positions. Dollar General Corp. (NYSE:DG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DG is 52.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately DG wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DG were disappointed as the stock returned 4.7% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
