You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Is Lear Corporation (NYSE:LEA) an exceptional investment today? Hedge funds are in a bearish mood. The number of long hedge fund positions went down by 5 in recent months. Our calculations also showed that LEA isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.
Let’s analyze the key hedge fund action encompassing Lear Corporation (NYSE:LEA).
Hedge fund activity in Lear Corporation (NYSE:LEA)
At Q4’s end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from one quarter earlier. By comparison, 35 hedge funds held shares or bullish call options in LEA a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Pzena Investment Management, managed by Richard S. Pzena, holds the most valuable position in Lear Corporation (NYSE:LEA). Pzena Investment Management has a $339.9 million position in the stock, comprising 2% of its 13F portfolio. Sitting at the No. 2 spot is Cliff Asness of AQR Capital Management, with a $132 million position; 0.2% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish contain Israel Englander’s Millennium Management, Jim Simons’s Renaissance Technologies and John Overdeck and David Siegel’s Two Sigma Advisors.
Since Lear Corporation (NYSE:LEA) has experienced a decline in interest from hedge fund managers, logic holds that there exists a select few funds that decided to sell off their full holdings last quarter. Interestingly, Robert Polak’s Anchor Bolt Capital said goodbye to the biggest position of all the hedgies tracked by Insider Monkey, worth about $39.2 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $37.9 million worth. These moves are interesting, as aggregate hedge fund interest fell by 5 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Lear Corporation (NYSE:LEA). These stocks are Zions Bancorporation (NASDAQ:ZION), ASE Technology Holding Co., Ltd. (NYSE:ASX), OGE Energy Corp. (NYSE:OGE), and RPM International Inc. (NYSE:RPM). This group of stocks’ market caps resemble LEA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ZION | 42 | 668356 | 10 |
| ASX | 7 | 174925 | 0 |
| OGE | 16 | 293216 | -3 |
| RPM | 23 | 460684 | -5 |
| Average | 22 | 399295 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $399 million. That figure was $648 million in LEA’s case. Zions Bancorporation (NASDAQ:ZION) is the most popular stock in this table. On the other hand ASE Technology Holding Co., Ltd. (NYSE:ASX) is the least popular one with only 7 bullish hedge fund positions. Lear Corporation (NYSE:LEA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. A handful of hedge funds were also right about betting on LEA as the stock returned 24.9% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
