We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 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 Deluxe Corporation (NYSE:DLX).
Is Deluxe Corporation (NYSE:DLX) a marvelous investment right now? The best stock pickers are betting on the stock. The number of bullish hedge fund bets inched up by 4 recently. Our calculations also showed that DLX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). DLX was in 23 hedge funds’ portfolios at the end of September. There were 19 hedge funds in our database with DLX 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.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
John Overdeck of Two Sigma Advisors
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s review the fresh hedge fund action regarding Deluxe Corporation (NYSE:DLX).
What have hedge funds been doing with Deluxe Corporation (NYSE:DLX)?
At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the second quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in DLX a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Deluxe Corporation (NYSE:DLX), with a stake worth $56.3 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $25.5 million. D E Shaw, GLG Partners, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Deluxe Corporation (NYSE:DLX), around 1.26% of its 13F portfolio. G2 Investment Partners Management is also relatively very bullish on the stock, earmarking 1.22 percent of its 13F equity portfolio to DLX.
Now, some big names have jumped into Deluxe Corporation (NYSE:DLX) headfirst. G2 Investment Partners Management, managed by Josh Goldberg, assembled the biggest position in Deluxe Corporation (NYSE:DLX). G2 Investment Partners Management had $4.3 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also made a $0.9 million investment in the stock during the quarter. The following funds were also among the new DLX investors: Bruce Kovner’s Caxton Associates, Ray Dalio’s Bridgewater Associates, and Michael Gelband’s ExodusPoint Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Deluxe Corporation (NYSE:DLX) but similarly valued. These stocks are Apergy Corporation (NYSE:APY), The Geo Group, Inc. (NYSE:GEO), Adtalem Global Education Inc. (NYSE:ATGE), and Acceleron Pharma Inc (NASDAQ:XLRN). This group of 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 |
|---|---|---|---|
| APY | 16 | 87946 | 1 |
| GEO | 21 | 107529 | 1 |
| ATGE | 22 | 200763 | 8 |
| XLRN | 23 | 321739 | 2 |
| Average | 20.5 | 179494 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $179 million. That figure was $134 million in DLX’s case. Acceleron Pharma Inc (NASDAQ:XLRN) is the most popular stock in this table. On the other hand Apergy Corporation (NYSE:APY) is the least popular one with only 16 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 4.5% during the fourth quarter (through the end of November) 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.
