Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Is Deluxe Corporation (NYSE:DLX) the right pick for your portfolio? Money managers are taking an optimistic view. The number of long hedge fund bets inched up by 3 in recent months. Our calculations also showed that DLX isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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.
Let’s go over the key hedge fund action regarding Deluxe Corporation (NYSE:DLX).
How have hedgies been trading Deluxe Corporation (NYSE:DLX)?
At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards DLX over the last 14 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 Deluxe Corporation (NYSE:DLX) was held by AQR Capital Management, which reported holding $20.8 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $15.7 million position. Other investors bullish on the company included Renaissance Technologies, D E Shaw, and Millennium Management.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Deluxe Corporation (NYSE:DLX) headfirst. Weld Capital Management, managed by Minhua Zhang, created the largest position in Deluxe Corporation (NYSE:DLX). Weld Capital Management had $1 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $0.6 million position during the quarter. The other funds with brand new DLX positions are Matthew Hulsizer’s PEAK6 Capital Management, Bruce Kovner’s Caxton Associates LP, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s check out hedge fund activity in other stocks similar to Deluxe Corporation (NYSE:DLX). These stocks are Four Corners Property Trust, Inc. (NYSE:FCPT), GCP Applied Technologies Inc. (NYSE:GCP), Renasant Corporation (NASDAQ:RNST), and Columbia Financial, Inc. (NASDAQ:CLBK). All of these stocks’ market caps are closest to DLX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FCPT | 13 | 97064 | 0 |
| GCP | 16 | 435331 | -3 |
| RNST | 13 | 34274 | -4 |
| CLBK | 6 | 25171 | -1 |
| Average | 12 | 147960 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $148 million. That figure was $100 million in DLX’s case. GCP Applied Technologies Inc. (NYSE:GCP) is the most popular stock in this table. On the other hand Columbia Financial, Inc. (NASDAQ:CLBK) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on DLX, though not to the same extent, as the stock returned 19.5% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
