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Deluxe Corporation (DLX): Hedge Fund Sentiment Above Average

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Deluxe Corporation (NYSE:DLX)? The smart money sentiment can provide an answer to this question.

Deluxe Corporation (NYSE:DLX) shareholders have witnessed a decrease in enthusiasm from smart money lately. Our calculations also showed that DLX isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
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’ 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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

DLX_oct2019

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 go over the recent hedge fund action surrounding Deluxe Corporation (NYSE:DLX).

What have hedge funds been doing with Deluxe Corporation (NYSE:DLX)?

At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DLX over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

D. E. Shaw

More specifically, AQR Capital Management was the largest shareholder of Deluxe Corporation (NYSE:DLX), with a stake worth $37.3 million reported as of the end of March. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $19.2 million. D E Shaw, Millennium Management, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Deluxe Corporation (NYSE:DLX) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of money managers who were dropping their full holdings in the second quarter. Interestingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital cut the largest position of the “upper crust” of funds monitored by Insider Monkey, worth close to $0.8 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also cut its stock, about $0.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds in the second quarter.

Let’s check out 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 Kaman Corporation (NYSE:KAMN), WillScot Corporation (NASDAQ:WSC), Zuora, Inc. (NYSE:ZUO), and Magellan Health Inc (NASDAQ:MGLN). All of these stocks’ market caps match DLX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KAMN 14 237265 2
WSC 23 186226 1
ZUO 19 190779 -2
MGLN 19 379621 -2
Average 18.75 248473 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $126 million in DLX’s case. WillScot Corporation (NASDAQ:WSC) is the most popular stock in this table. On the other hand Kaman Corporation (NYSE:KAMN) is the least popular one with only 14 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. 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. Hedge funds were also right about betting on DLX as the stock returned 21.7% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.

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