We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Delek US Holdings, Inc. (NYSE:DK).
Is Delek US Holdings, Inc. (NYSE:DK) going to take off soon? The best stock pickers are becoming less hopeful. The number of long hedge fund bets went down by 10 in recent months. Our calculations also showed that DK isn't among the 30 most popular stocks among hedge funds (view the video below). DK was in 18 hedge funds' portfolios at the end of the second quarter of 2019. There were 28 hedge funds in our database with DK positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. Let's take a gander at the new hedge fund action encompassing Delek US Holdings, Inc. (NYSE:DK).
How have hedgies been trading Delek US Holdings, Inc. (NYSE:DK)?
At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -36% from one quarter earlier. By comparison, 29 hedge funds held shares or bullish call options in DK a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Delek US Holdings, Inc. (NYSE:DK), with a stake worth $42.8 million reported as of the end of March. Trailing Fisher Asset Management was Citadel Investment Group, which amassed a stake valued at $14.6 million. Citadel Investment Group, Balyasny Asset Management, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Since Delek US Holdings, Inc. (NYSE:DK) has witnessed falling interest from hedge fund managers, we can see that there was a specific group of funds that slashed their full holdings by the end of the second quarter. Intriguingly, Steve Cohen's Point72 Asset Management sold off the largest stake of all the hedgies monitored by Insider Monkey, comprising about $17.4 million in call options. Steve Cohen's fund, Point72 Asset Management, also dumped its call options, about $14.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 10 funds by the end of the second quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Delek US Holdings, Inc. (NYSE:DK) but similarly valued. These stocks are Corporate Office Properties Trust (NYSE:OFC), Sibanye Gold Ltd (NYSE:SBGL), Acadia Healthcare Company Inc (NASDAQ:ACHC), and Chesapeake Energy Corporation (NYSE:CHK). All of these stocks' market caps are closest to DK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OFC,16,183349,4 SBGL,9,92525,-3 ACHC,17,593650,-2 CHK,18,96204,-2 Average,15,241432,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $241 million. That figure was $118 million in DK's case. Chesapeake Energy Corporation (NYSE:CHK) is the most popular stock in this table. On the other hand Sibanye Gold Ltd (NYSE:SBGL) is the least popular one with only 9 bullish hedge fund positions. Delek US Holdings, Inc. (NYSE:DK) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 DK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DK were disappointed as the stock returned -9.6% 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 among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.