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Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Delek US Holdings, Inc. (NYSE:DK).
Is Delek US Holdings, Inc. (NYSE:DK) a buy right now? Investors who are in the know are becoming less confident. The number of long hedge fund positions fell by 3 lately. Our calculations also showed that DK 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). DK was in 19 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 22 hedge funds in our database with DK 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 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 S&P 500 ETFs by 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 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.
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Ken Griffin of Citadel Investment Group[/caption]
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 we're going to go over the recent hedge fund action surrounding Delek US Holdings, Inc. (NYSE:DK).
How have hedgies been trading Delek US Holdings, Inc. (NYSE:DK)?
Heading into the first quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DK over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Delek US Holdings, Inc. (NYSE:DK) was held by Fisher Asset Management, which reported holding $28 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $15.5 million position. Other investors bullish on the company included GLG Partners, Arrowstreet Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position BP Capital allocated the biggest weight to Delek US Holdings, Inc. (NYSE:DK), around 0.57% of its 13F portfolio. TwinBeech Capital is also relatively very bullish on the stock, dishing out 0.22 percent of its 13F equity portfolio to DK.
Due to the fact that Delek US Holdings, Inc. (NYSE:DK) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there exists a select few hedgies that elected to cut their positions entirely last quarter. Intriguingly, Roy Vermus and Shlomi Bracha's Noked Capital cut the largest stake of all the hedgies monitored by Insider Monkey, comprising about $7.7 million in stock. Michael Kharitonov and Jon David McAuliffe's fund, Voleon Capital, also dumped its stock, about $1.6 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 3 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Delek US Holdings, Inc. (NYSE:DK). These stocks are Domtar Corporation (NYSE:UFS), Hillenbrand, Inc. (NYSE:HI), First Majestic Silver Corp (NYSE:AG), and California Water Service Group (NYSE:CWT). This group of stocks' market values resemble DK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UFS,26,147091,3 HI,24,122068,-1 AG,16,84709,1 CWT,20,43173,3 Average,21.5,99260,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $61 million in DK's case. Domtar Corporation (NYSE:UFS) is the most popular stock in this table. On the other hand First Majestic Silver Corp (NYSE:AG) is the least popular one with only 16 bullish hedge fund positions. Delek US Holdings, Inc. (NYSE:DK) 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 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 but beat the market by 5.5 percentage points. Unfortunately DK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DK investors were disappointed as the stock returned -58.7% during the same time period 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.