Do Hedge Funds Love Lloyds Banking Group PLC (LYG)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Lloyds Banking Group PLC (NYSE:LYG) based on that data.

Is Lloyds Banking Group PLC (NYSE:LYG) an exceptional investment now? The smart money is getting more optimistic. The number of bullish hedge fund positions went up by 4 lately. Our calculations also showed that LYG 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).

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 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 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.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the top 15 defense contractors in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Keeping this in mind we’re going to take a look at the key hedge fund action surrounding Lloyds Banking Group PLC (NYSE:LYG).

Hedge fund activity in Lloyds Banking Group PLC (NYSE:LYG)

At Q1’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 80% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards LYG over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Lloyds Banking Group PLC (NYSE:LYG), which was worth $30.5 million at the end of the third quarter. On the second spot was Millennium Management which amassed $5.1 million worth of shares. Citadel Investment Group, Arrowstreet Capital, and Two Sigma Advisors 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 Renaissance Technologies allocated the biggest weight to Lloyds Banking Group PLC (NYSE:LYG), around 0.03% of its 13F portfolio. Fourthstone LLC is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to LYG.

As one would reasonably expect, specific money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the largest position in Lloyds Banking Group PLC (NYSE:LYG). Millennium Management had $5.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $0.4 million investment in the stock during the quarter. The following funds were also among the new LYG investors: Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Matthew Hulsizer’s PEAK6 Capital Management, and Phil Stone’s Fourthstone LLC.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Lloyds Banking Group PLC (NYSE:LYG) but similarly valued. These stocks are Consolidated Edison, Inc. (NYSE:ED), Eversource Energy (NYSE:ES), Canadian Imperial Bank of Commerce (NYSE:CM), and Brown-Forman Corporation (NYSE:BF). All of these stocks’ market caps are similar to LYG’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $483 million. That figure was $37 million in LYG’s case. Brown-Forman Corporation (NYSE:BF) is the most popular stock in this table. On the other hand Canadian Imperial Bank of Commerce (NYSE:CM) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Lloyds Banking Group PLC (NYSE:LYG) is even less popular than CM. Hedge funds dodged a bullet by taking a bearish stance towards LYG. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd but managed to beat the market by 15.9 percentage points. Unfortunately LYG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); LYG investors were disappointed as the stock returned 9.3% during the second quarter (through June 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

Disclosure: None. This article was originally published at Insider Monkey.