The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtLumber Liquidators Holdings Inc (NYSE:LL) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.
Is Lumber Liquidators Holdings Inc (NYSE:LL) undervalued? Prominent investors were becoming less confident. The number of bullish hedge fund positions went down by 2 in recent months. Our calculations also showed that LL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). LL was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. There were 13 hedge funds in our database with LL holdings at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Philippe Laffont of Coatue Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the latest hedge fund action surrounding Lumber Liquidators Holdings Inc (NYSE:LL).
How are hedge funds trading Lumber Liquidators Holdings Inc (NYSE:LL)?
At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards LL over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Lumber Liquidators Holdings Inc (NYSE:LL), with a stake worth $5.5 million reported as of the end of September. Trailing Royce & Associates was Marshall Wace LLP, which amassed a stake valued at $2.6 million. D E Shaw, Citadel Investment Group, and Arrowstreet Capital 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 Royce & Associates allocated the biggest weight to Lumber Liquidators Holdings Inc (NYSE:LL), around 0.08% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, setting aside 0.03 percent of its 13F equity portfolio to LL.
Because Lumber Liquidators Holdings Inc (NYSE:LL) has experienced declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds that slashed their full holdings heading into Q4. Interestingly, Daniel S. Och’s OZ Management dumped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, totaling about $0.9 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also cut its stock, about $0.4 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Lumber Liquidators Holdings Inc (NYSE:LL) but similarly valued. These stocks are Americas Gold and Silver Corporation (NYSE:USAS), Protara Therapeutics, Inc. (NASDAQ:TARA), Sify Technologies Limited (NASDAQ:SIFY), and Shore Bancshares, Inc. (NASDAQ:SHBI). This group of stocks’ market values resemble LL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| USAS | 8 | 4402 | 3 |
| TARA | 10 | 79858 | 4 |
| SIFY | 1 | 408 | -1 |
| SHBI | 5 | 23001 | -1 |
| Average | 6 | 26917 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $14 million in LL’s case. Protara Therapeutics, Inc. (NASDAQ:TARA) is the most popular stock in this table. On the other hand Sify Technologies Limited (NASDAQ:SIFY) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Lumber Liquidators Holdings Inc (NYSE:LL) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on LL as the stock returned 195.5% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
