As we already know from media reports and hedge fund investor letters, many hedge funds lost money in fourth quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with technology among them. Nevertheless, most investors decided to stick to their bullish theses and recouped their losses by the end of the first quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Deluxe Corporation (NYSE:DLX).
Is Deluxe Corporation (NYSE:DLX) a buy right now? The smart money is becoming less confident. The number of long hedge fund bets dropped by 3 lately. Our calculations also showed that dlx isn't among the 30 most popular stocks among hedge funds.
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 40 percentage points since May 2014 through May 30, 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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a gander at the latest hedge fund action regarding Deluxe Corporation (NYSE:DLX).
How are hedge funds trading Deluxe Corporation (NYSE:DLX)?
At Q1's end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in DLX a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Deluxe Corporation (NYSE:DLX). AQR Capital Management has a $31.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is D E Shaw, managed by D. E. Shaw, which holds a $19.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers with similar optimism include Jim Simons's Renaissance Technologies, Ken Griffin's Citadel Investment Group and John Overdeck and David Siegel's Two Sigma Advisors.
Because Deluxe Corporation (NYSE:DLX) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds who sold off their entire stakes heading into Q3. It's worth mentioning that Ray Dalio's Bridgewater Associates dumped the largest stake of all the hedgies tracked by Insider Monkey, valued at about $1.4 million in stock, and Bernard Horn's Polaris Capital Management was right behind this move, as the fund dropped about $1.2 million worth. These transactions are important to note, as total hedge fund interest was cut by 3 funds heading into Q3.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Deluxe Corporation (NYSE:DLX) but similarly valued. We will take a look at Select Medical Holdings Corporation (NYSE:SEM), The RMR Group Inc. (NASDAQ:RMR), Visteon Corp (NASDAQ:VC), and HFF, Inc. (NYSE:HF). This group of stocks' market caps are similar to DLX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SEM,21,177800,2 RMR,20,50019,6 VC,21,189711,1 HF,11,70647,-2 Average,18.25,122044,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $128 million in DLX's case. Select Medical Holdings Corporation (NYSE:SEM) is the most popular stock in this table. On the other hand HFF, Inc. (NYSE:HF) is the least popular one with only 11 bullish hedge fund positions. Deluxe Corporation (NYSE:DLX) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately DLX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DLX were disappointed as the stock returned -15.1% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.