Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is Deluxe Corporation (NYSE:DLX) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Deluxe Corporation (NYSE:DLX) an excellent investment today? Hedge funds are becoming hopeful. The number of long hedge fund positions inched up by 5 in recent months. Our calculations also showed that DLX 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. 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
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to check out the key hedge fund action regarding Deluxe Corporation (NYSE:DLX).
What does smart money think about Deluxe Corporation (NYSE:DLX)?
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in DLX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the number one position in Deluxe Corporation (NYSE:DLX). AQR Capital Management has a $54.9 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Renaissance Technologies, with a $25.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism include Noam Gottesman’s GLG Partners, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position G2 Investment Partners Management allocated the biggest weight to Deluxe Corporation (NYSE:DLX), around 2.4% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, earmarking 1.06 percent of its 13F equity portfolio to DLX.
As one would reasonably expect, some big names have jumped into Deluxe Corporation (NYSE:DLX) headfirst. Voleon Capital, managed by Michael Kharitonov and Jon David McAuliffe, initiated the most valuable position in Deluxe Corporation (NYSE:DLX). Voleon Capital had $2.1 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $0.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Peter Muller’s PDT Partners.
Let’s check out hedge fund activity in other stocks similar to Deluxe Corporation (NYSE:DLX). These stocks are AssetMark Financial Holdings, Inc. (NYSE:AMK), Matador Resources Co (NYSE:MTDR), Mack Cali Realty Corp (NYSE:CLI), and AlarmCom Holdings Inc (NASDAQ:ALRM). All of these stocks’ market caps are similar to DLX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMK | 6 | 50409 | -4 |
| MTDR | 23 | 163971 | 7 |
| CLI | 15 | 133709 | 2 |
| ALRM | 28 | 260363 | 7 |
| Average | 18 | 152113 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $162 million in DLX’s case. AlarmCom Holdings Inc (NASDAQ:ALRM) is the most popular stock in this table. On the other hand AssetMark Financial Holdings, Inc. (NYSE:AMK) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Deluxe Corporation (NYSE:DLX) is more popular among hedge funds. 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 13.0% in 2020 through April 6th and still beat the market by 4.2 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 -50.8% during the three months of 2020 (through April 6th) 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 2020.
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.
