The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on September 30th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Lydall, Inc. (NYSE:LDL) based on those filings.
Is Lydall, Inc. (NYSE:LDL) an exceptional investment right now? Hedge funds are in an optimistic mood. The number of bullish hedge fund positions rose by 1 in recent months. Our calculations also showed that LDL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s go over the new hedge fund action surrounding Lydall, Inc. (NYSE:LDL).
Hedge fund activity in Lydall, Inc. (NYSE:LDL)
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LDL over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in Lydall, Inc. (NYSE:LDL) was held by Royce & Associates, which reported holding $11.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $3.6 million position. Other investors bullish on the company included AQR Capital Management, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position AlphaOne Capital Partners allocated the biggest weight to Lydall, Inc. (NYSE:LDL), around 0.38% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.13 percent of its 13F equity portfolio to LDL.
As aggregate interest increased, key money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in Lydall, Inc. (NYSE:LDL). Arrowstreet Capital had $0.5 million invested in the company at the end of the quarter.
Let’s check out hedge fund activity in other stocks similar to Lydall, Inc. (NYSE:LDL). We will take a look at CNB Financial Corporation Inc (NASDAQ:CCNE), The Cato Corporation (NYSE:CATO), Newtek Business Services, Corp. (NASDAQ:NEWT), and Oportun Financial Corporation (NASDAQ:OPRT). All of these stocks’ market caps are closest to LDL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CCNE | 3 | 30012 | 1 |
| CATO | 14 | 36788 | -4 |
| NEWT | 6 | 12659 | 1 |
| OPRT | 12 | 18874 | 12 |
| Average | 8.75 | 24583 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $23 million in LDL’s case. The Cato Corporation (NYSE:CATO) is the most popular stock in this table. On the other hand CNB Financial Corporation Inc (NASDAQ:CCNE) is the least popular one with only 3 bullish hedge fund positions. Lydall, Inc. (NYSE:LDL) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LDL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LDL were disappointed as the stock returned -25.3% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
