A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on Donnelley Financial Solutions, Inc. (NYSE:DFIN).
Is DFIN a good stock to buy now? Donnelley Financial Solutions, Inc. (NYSE:DFIN) has experienced a decrease in support from the world’s most elite money managers of late. Donnelley Financial Solutions, Inc. (NYSE:DFIN) was in 18 hedge funds’ portfolios at the end of September. The all time high for this statistic is 23. Our calculations also showed that DFIN isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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 recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind let’s take a gander at the recent hedge fund action regarding Donnelley Financial Solutions, Inc. (NYSE:DFIN).
Do Hedge Funds Think DFIN Is A Good Stock To Buy Now?
At the end of September, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the second quarter of 2020. By comparison, 14 hedge funds held shares or bullish call options in DFIN a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, Simcoe Capital Management was the largest shareholder of Donnelley Financial Solutions, Inc. (NYSE:DFIN), with a stake worth $44.1 million reported as of the end of September. Trailing Simcoe Capital Management was D E Shaw, which amassed a stake valued at $8 million. Arrowstreet Capital, Two Sigma Advisors, and Invenomic Capital Management 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 Simcoe Capital Management allocated the biggest weight to Donnelley Financial Solutions, Inc. (NYSE:DFIN), around 10.11% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, earmarking 5.4 percent of its 13F equity portfolio to DFIN.
Due to the fact that Donnelley Financial Solutions, Inc. (NYSE:DFIN) has faced bearish sentiment from the smart money, it’s safe to say that there lies a certain “tier” of funds that elected to cut their full holdings in the third quarter. At the top of the heap, Paul Hondros’s AlphaOne Capital Partners dropped the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling about $0.8 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund sold off about $0.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 5 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to Donnelley Financial Solutions, Inc. (NYSE:DFIN). These stocks are WideOpenWest, Inc. (NYSE:WOW), Juniper Industrial Holdings, Inc. (NYSE:JIH), Cowen Inc. (NASDAQ:COWN), The First Bancshares, Inc. (MS) (NASDAQ:FBMS), Antares Pharma Inc (NASDAQ:ATRS), Geopark Ltd (NYSE:GPRK), and Global Partners LP (NYSE:GLP). 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|
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $69 million in DFIN’s case. Juniper Industrial Holdings, Inc. (NYSE:JIH) is the most popular stock in this table. On the other hand Global Partners LP (NYSE:GLP) is the least popular one with only 2 bullish hedge fund positions. Donnelley Financial Solutions, Inc. (NYSE:DFIN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DFIN is 63.5. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on DFIN as the stock returned 35.9% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.