We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Deluxe Corporation (NYSE:DLX) and determine whether hedge funds skillfully traded this stock.
Is Deluxe Corporation (NYSE:DLX) ready to rally soon? The best stock pickers were taking an optimistic view. The number of long hedge fund positions moved up by 3 in recent months. Deluxe Corporation (NYSE:DLX) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 29. Our calculations also showed that DLX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 15 hedge funds in our database with DLX holdings at the end of March.
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 56 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a glance at the key hedge fund action encompassing Deluxe Corporation (NYSE:DLX).
What have hedge funds been doing with Deluxe Corporation (NYSE:DLX)?
At Q2’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position 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.
Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in Deluxe Corporation (NYSE:DLX). AQR Capital Management has a $20.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, founded by Jim Simons, holding a $13.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions contain Chuck Royce’s Royce & Associates, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Deluxe Corporation (NYSE:DLX), around 0.51% of its 13F portfolio. Minerva Advisors is also relatively very bullish on the stock, dishing out 0.48 percent of its 13F equity portfolio to DLX.
Now, key hedge funds were breaking ground themselves. Millennium Management, managed by Israel Englander, initiated the largest position in Deluxe Corporation (NYSE:DLX). Millennium Management had $4.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $2.6 million position during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Bruce Kovner’s Caxton Associates LP, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s check out hedge fund activity in other stocks similar to Deluxe Corporation (NYSE:DLX). These stocks are John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM), M/I Homes Inc (NYSE:MHO), Ferro Corporation (NYSE:FOE), BGC Partners, Inc. (NASDAQ:BGCP), Virtusa Corporation (NASDAQ:VRTU), and Ladder Capital Corp (NYSE:LADR). This group of stocks’ market values resemble DLX’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $69 million in DLX’s case. BGC Partners, Inc. (NASDAQ:BGCP) is the most popular stock in this table. On the other hand Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) is the least popular one with only 11 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 overall hedge fund sentiment score for DLX is 47.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on DLX, though not to the same extent, as the stock returned 10.4% in Q3 and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.