It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Louisiana-Pacific Corporation (NYSE:LPX).
Louisiana-Pacific Corporation (NYSE:LPX) has experienced an increase in hedge fund interest lately. LPX was in 31 hedge funds’ portfolios at the end of the third quarter of 2019. There were 27 hedge funds in our database with LPX holdings at the end of the previous quarter. Our calculations also showed that LPX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Israel Englander of Millennium Management
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 as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to check out the new hedge fund action surrounding Louisiana-Pacific Corporation (NYSE:LPX).
Hedge fund activity in Louisiana-Pacific Corporation (NYSE:LPX)
At Q3’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in LPX a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Israel Englander’s Millennium Management has the most valuable position in Louisiana-Pacific Corporation (NYSE:LPX), worth close to $106.2 million, amounting to 0.2% of its total 13F portfolio. The second most bullish fund manager is Impala Asset Management, led by Robert Bishop, holding a $84.3 million position; the fund has 6.1% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism include Renaissance Technologies, Phill Gross and Robert Atchinson’s Adage Capital Management and Jeffrey Altman’s Owl Creek Asset Management. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to Louisiana-Pacific Corporation (NYSE:LPX), around 6.09% of its 13F portfolio. Owl Creek Asset Management is also relatively very bullish on the stock, setting aside 2.65 percent of its 13F equity portfolio to LPX.
As aggregate interest increased, specific money managers were leading the bulls’ herd. Impala Asset Management, managed by Robert Bishop, established the most valuable position in Louisiana-Pacific Corporation (NYSE:LPX). Impala Asset Management had $84.3 million invested in the company at the end of the quarter. Mike Masters’s Masters Capital Management also initiated a $12.3 million position during the quarter. The other funds with new positions in the stock are Louis Bacon’s Moore Global Investments, Alexander Mitchell’s Scopus Asset Management, and Anand Parekh’s Alyeska Investment Group.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Louisiana-Pacific Corporation (NYSE:LPX) but similarly valued. We will take a look at CVB Financial Corp. (NASDAQ:CVBF), Gates Industrial Corporation plc (NYSE:GTES), SkyWest, Inc. (NASDAQ:SKYW), and WNS (Holdings) Limited (NYSE:WNS). This group of stocks’ market caps resemble LPX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CVBF | 12 | 43719 | 0 |
| GTES | 14 | 50130 | 1 |
| SKYW | 15 | 177096 | 2 |
| WNS | 18 | 214456 | 2 |
| Average | 14.75 | 121350 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $532 million in LPX’s case. WNS (Holdings) Limited (NYSE:WNS) is the most popular stock in this table. On the other hand CVB Financial Corp. (NASDAQ:CVBF) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Louisiana-Pacific Corporation (NYSE:LPX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on LPX, though not to the same extent, as the stock returned 37% during the same period and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
