We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Lumen Technologies, Inc. (NYSE:LUMN).
Lumen Technologies, Inc. (NYSE:LUMN) was in 32 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 40. LUMN investors should pay attention to an increase in activity from the world’s largest hedge funds of late. There were 29 hedge funds in our database with LUMN holdings at the end of December. Our calculations also showed that LUMN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 S&P 500 ETFs by 115 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.
Mason Hawkins of Southeastern Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a gander at the recent hedge fund action regarding Lumen Technologies, Inc. (NYSE:LUMN).
Do Hedge Funds Think LUMN Is A Good Stock To Buy Now?
At first quarter’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from one quarter earlier. By comparison, 34 hedge funds held shares or bullish call options in LUMN a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Southeastern Asset Management was the largest shareholder of Lumen Technologies, Inc. (NYSE:LUMN), with a stake worth $829.2 million reported as of the end of March. Trailing Southeastern Asset Management was Arrowstreet Capital, which amassed a stake valued at $37.9 million. D E Shaw, Fairfax Financial Holdings, and GLG Partners 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 Southeastern Asset Management allocated the biggest weight to Lumen Technologies, Inc. (NYSE:LUMN), around 17.74% of its 13F portfolio. Fairfax Financial Holdings is also relatively very bullish on the stock, dishing out 0.66 percent of its 13F equity portfolio to LUMN.
As aggregate interest increased, key hedge funds have been driving this bullishness. GLG Partners, managed by Noam Gottesman, initiated the most outsized position in Lumen Technologies, Inc. (NYSE:LUMN). GLG Partners had $16.1 million invested in the company at the end of the quarter. Jonathan Soros’s JS Capital also initiated a $2.5 million position during the quarter. The other funds with brand new LUMN positions are Ali Motamed’s Invenomic Capital Management, David Costen Haley’s HBK Investments, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s also examine hedge fund activity in other stocks similar to Lumen Technologies, Inc. (NYSE:LUMN). These stocks are News Corp (NASDAQ:NWS), News Corp (NASDAQ:NWSA), Charles River Laboratories International Inc. (NYSE:CRL), Wynn Resorts, Limited (NASDAQ:WYNN), ABIOMED, Inc. (NASDAQ:ABMD), PerkinElmer, Inc. (NYSE:PKI), and FMC Corporation (NYSE:FMC). All of these stocks’ market caps resemble LUMN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NWS | 21 | 168400 | 10 |
| NWSA | 35 | 1235000 | 3 |
| CRL | 42 | 1118745 | -1 |
| WYNN | 49 | 1074268 | -3 |
| ABMD | 26 | 1003000 | 3 |
| PKI | 33 | 1748962 | 2 |
| FMC | 32 | 499555 | -13 |
| Average | 34 | 978276 | 0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $978 million. That figure was $1005 million in LUMN’s case. Wynn Resorts, Limited (NASDAQ:WYNN) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 21 bullish hedge fund positions. Lumen Technologies, Inc. (NYSE:LUMN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LUMN is 51.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and surpassed the market again by 6 percentage points. Unfortunately LUMN wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); LUMN investors were disappointed as the stock returned 4.5% since the end of March (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
Follow Lumen Technologies Inc. (NYSE:LUMN)
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Disclosure: None. This article was originally published at Insider Monkey.
