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Did Hedge Funds Make The Right Call On Donnelley Financial Solutions, Inc. (DFIN)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtDonnelley Financial Solutions, Inc. (NYSE:DFIN) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Donnelley Financial Solutions, Inc. (NYSE:DFIN) has experienced a decrease in hedge fund interest recently. DFIN was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. There were 22 hedge funds in our database with DFIN positions at the end of the previous quarter. Our calculations also showed that DFIN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a glance at the recent hedge fund action regarding Donnelley Financial Solutions, Inc. (NYSE:DFIN).

What have hedge funds been doing with Donnelley Financial Solutions, Inc. (NYSE:DFIN)?

Heading into the second quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in DFIN over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Donnelley Financial Solutions, Inc. (NYSE:DFIN) was held by Simcoe Capital Management, which reported holding $17.4 million worth of stock at the end of September. It was followed by D E Shaw with a $3.4 million position. Other investors bullish on the company included Marshall Wace LLP, Invenomic Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Simcoe Capital Management allocated the biggest weight to Donnelley Financial Solutions, Inc. (NYSE:DFIN), around 5.33% of its 13F portfolio. AlphaOne Capital Partners is also relatively very bullish on the stock, designating 0.87 percent of its 13F equity portfolio to DFIN.

Since Donnelley Financial Solutions, Inc. (NYSE:DFIN) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of fund managers who sold off their full holdings by the end of the first quarter. Intriguingly, Touk Sinantha’s AltraVue Capital dropped the largest investment of the “upper crust” of funds watched by Insider Monkey, worth about $2.1 million in stock, and Harry Gail’s Harspring Capital Management was right behind this move, as the fund sold off about $0.4 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks similar to Donnelley Financial Solutions, Inc. (NYSE:DFIN). We will take a look at CapStar Financial Holdings, Inc. (NASDAQ:CSTR), Cabaletta Bio, Inc. (NASDAQ:CABA), Tecnoglass Inc. (NASDAQ:TGLS), and Viemed Healthcare, Inc. (NASDAQ:VMD). This group of stocks’ market valuations match DFIN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CSTR 10 7454 5
CABA 9 69313 2
TGLS 5 6805 0
VMD 7 8912 -1
Average 7.75 23121 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $28 million in DFIN’s case. CapStar Financial Holdings, Inc. (NASDAQ:CSTR) is the most popular stock in this table. On the other hand Tecnoglass Inc. (NASDAQ:TGLS) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Donnelley Financial Solutions, Inc. (NYSE:DFIN) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on DFIN as the stock returned 55.2% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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