Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the second quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 6.6 percentage points through May 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Leidos Holdings Inc (NYSE:LDOS) has seen a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that LDOS isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 40 percentage points since May 2014 through May 30, 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.
We’re going to review the latest hedge fund action regarding Leidos Holdings Inc (NYSE:LDOS).
How are hedge funds trading Leidos Holdings Inc (NYSE:LDOS)?
At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards LDOS over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Southpoint Capital Advisors was the largest shareholder of Leidos Holdings Inc (NYSE:LDOS), with a stake worth $121.8 million reported as of the end of March. Trailing Southpoint Capital Advisors was Samlyn Capital, which amassed a stake valued at $47.4 million. Two Sigma Advisors, Citadel Investment Group, and Alyeska Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Leidos Holdings Inc (NYSE:LDOS) has witnessed a decline in interest from the smart money, it’s safe to say that there exists a select few money managers that decided to sell off their full holdings last quarter. It’s worth mentioning that Jim Simons’s Renaissance Technologies dumped the largest investment of all the hedgies tracked by Insider Monkey, totaling about $12.9 million in stock, and James Dinan’s York Capital Management was right behind this move, as the fund said goodbye to about $6.9 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 5 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to Leidos Holdings Inc (NYSE:LDOS). We will take a look at Qiagen NV (NYSE:QGEN), Aurora Cannabis Inc. (NYSE:ACB), EPAM Systems Inc (NYSE:EPAM), and Bio-Rad Laboratories, Inc. (NYSE:BIO). This group of stocks’ market values are closest to LDOS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QGEN | 23 | 375552 | 2 |
| ACB | 11 | 115927 | 2 |
| EPAM | 21 | 72308 | -1 |
| BIO | 37 | 888698 | 2 |
| Average | 23 | 363121 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $363 million. That figure was $326 million in LDOS’s case. Bio-Rad Laboratories, Inc. (NYSE:BIO) is the most popular stock in this table. On the other hand Aurora Cannabis Inc. (NASDAQ:ACB) is the least popular one with only 11 bullish hedge fund positions. Leidos Holdings Inc (NYSE:LDOS) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on LDOS as the stock returned 16.8% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
