Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to LPL Financial Holdings Inc (NASDAQ:LPLA) changed recently.
Is LPL Financial Holdings Inc (NASDAQ:LPLA) ready to rally soon? Hedge funds are buying. The number of long hedge fund positions advanced by 3 in recent months. Our calculations also showed that LPLA 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). LPLA was in 34 hedge funds’ portfolios at the end of the third quarter of 2019. There were 31 hedge funds in our database with LPLA holdings at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
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. Keeping this in mind we’re going to take a gander at the latest hedge fund action regarding LPL Financial Holdings Inc (NASDAQ:LPLA).
What have hedge funds been doing with LPL Financial Holdings Inc (NASDAQ:LPLA)?
At Q3’s end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. By comparison, 35 hedge funds held shares or bullish call options in LPLA a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Robert Rodriguez and Steven Romick’s First Pacific Advisors has the largest position in LPL Financial Holdings Inc (NASDAQ:LPLA), worth close to $213.9 million, comprising 2% of its total 13F portfolio. Coming in second is Southpoint Capital Advisors, led by John Smith Clark, holding a $122.9 million position; the fund has 4.6% of its 13F portfolio invested in the stock. Remaining peers that are bullish contain Robert Pohly’s Samlyn Capital, Ken Griffin’s Citadel Investment Group and James Parsons’s Junto Capital Management. In terms of the portfolio weights assigned to each position Engle Capital allocated the biggest weight to LPL Financial Holdings Inc (NASDAQ:LPLA), around 11.08% of its 13F portfolio. Junto Capital Management is also relatively very bullish on the stock, setting aside 5.02 percent of its 13F equity portfolio to LPLA.
As one would reasonably expect, specific money managers have been driving this bullishness. Samlyn Capital, managed by Robert Pohly, initiated the most valuable call position in LPL Financial Holdings Inc (NASDAQ:LPLA). Samlyn Capital had $103.5 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $11.7 million position during the quarter. The following funds were also among the new LPLA investors: Daniel Johnson’s Gillson Capital, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, and James Dondero’s Highland Capital Management.
Let’s check out hedge fund activity in other stocks similar to LPL Financial Holdings Inc (NASDAQ:LPLA). These stocks are LATAM Airlines Group S.A. (NYSE:LTM), Monolithic Power Systems, Inc. (NASDAQ:MPWR), CubeSmart (NYSE:CUBE), and Etsy Inc (NASDAQ:ETSY). All of these stocks’ market caps match LPLA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LTM | 9 | 28716 | 4 |
| MPWR | 22 | 192922 | -1 |
| CUBE | 23 | 308978 | 5 |
| ETSY | 46 | 1224288 | 5 |
| Average | 25 | 438726 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $439 million. That figure was $1015 million in LPLA’s case. Etsy Inc (NASDAQ:ETSY) is the most popular stock in this table. On the other hand LATAM Airlines Group S.A. (NYSE:LTM) is the least popular one with only 9 bullish hedge fund positions. LPL Financial Holdings Inc (NASDAQ:LPLA) is not the most popular stock in this group but hedge fund interest is still above average. 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 LPLA as the stock returned 53.9% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
