Strong Rally Masks Strategic Portfolio Repositioning: How One Fund Exited Delek US Holdings

Delek US Holdings (NYSE: DK) has delivered impressive returns, surging 60% over the past 12 months—significantly outpacing the S&P 500’s 16% gain. Yet this stellar performance didn’t convince Boston-based Callodine Capital Management to hold the line. In November, the fund disclosed a complete exit from its Delek position during the third quarter, liquidating all 717,245 shares worth approximately $15.19 million.

The Fund’s Exit Strategy

According to SEC filings, Callodine Capital Management fully unwound its stake in Delek US Holdings during Q3, reducing what had represented 1.57% of the fund’s assets under management. The $15.19 million position reduction signals a deliberate choice: lock in gains rather than ride the momentum higher.

This decision reflects the fund’s broader investment philosophy. Callodine’s portfolio leans toward opportunistic, valuation-driven positions rather than long-term bets on cyclical commodity-linked earnings. The fund’s remaining top holdings—including NYSE:SPB ($90.09 million, 7.9% of AUM), NYSE:WWW ($74.13 million, 6.5% of AUM), and NASDAQ:VTRS ($68.72 million, 6.0% of AUM)—predominantly span consumer, financial, and asset-light businesses, creating a stark contrast with Delek’s capital-intensive, energy-dependent model.

Delek’s Operating Profile and Market Position

Delek US Holdings operates as an integrated downstream energy company, producing and marketing refined petroleum products including gasoline, diesel, aviation fuel, and asphalt. The company also runs convenience retail stores and biodiesel facilities across the southern and central U.S. markets.

Recent financial metrics underscore both the company’s strength and its vulnerabilities. In the latest quarter, Delek generated a $178 million profit compared to a $76.8 million loss a year prior—though this improvement was substantially driven by a $280.8 million government exemption benefit. The company’s trailing twelve-month revenue stands at $10.67 billion, with a net loss of $514.90 million and a 3% dividend yield. As of November, shares traded at $29.66.

Why Cyclicality Matters for Long-Term Returns

Delek’s vertically integrated model—spanning refining, logistics, and retail operations—provides structural advantages during favorable energy cycles. However, the fund’s departure hints at a crucial reality: those strengths become vulnerabilities when refining margins compress or market volatility resurfaces.

Management has leaned heavily on logistics stability and asset optimization to buffer cash flows, yet these measures offer limited protection when regional fuel demand softens or energy prices face pressure. For investors comfortable with lumpy, timing-dependent returns driven by margin fluctuations and capital discipline rather than steady compounding, Delek remains viable. For funds seeking predictable earnings streams, the risk-reward calculus looks less compelling.

The fund’s decision to sell during an extended rally illustrates a core investment discipline: recognizing when valuation has caught up with fundamentals, and reallocating capital toward opportunities with more durable competitive advantages—regardless of near-term momentum in the underlying stock.