Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.
L-3 Technologies, Inc. (NYSE:LLL) has seen an increase in hedge fund sentiment recently. LLL was in 26 hedge funds’ portfolios at the end of September. There were 20 hedge funds in our database with LLL holdings at the end of the previous quarter. Our calculations also showed that LLL isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Cliff Asness of AQR Capital Management
Let’s take a glance at the recent hedge fund action encompassing L-3 Technologies, Inc. (NYSE:LLL).
What have hedge funds been doing with L-3 Technologies, Inc. (NYSE:LLL)?
At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 30% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards LLL over the last 13 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of L-3 Technologies, Inc. (NYSE:LLL), with a stake worth $279.3 million reported as of the end of September. Trailing AQR Capital Management was Citadel Investment Group, which amassed a stake valued at $174 million. Alyeska Investment Group, Millennium Management, and Point72 Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, key hedge funds have jumped into L-3 Technologies, Inc. (NYSE:LLL) headfirst. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the most outsized position in L-3 Technologies, Inc. (NYSE:LLL). Adage Capital Management had $14.7 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also made a $10.7 million investment in the stock during the quarter. The following funds were also among the new LLL investors: Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital, David Costen Haley’s HBK Investments, and Jeffrey Talpins’s Element Capital Management.
Let’s go over hedge fund activity in other stocks similar to L-3 Technologies, Inc. (NYSE:LLL). These stocks are SVB Financial Group (NASDAQ:SIVB), STMicroelectronics N.V. (NYSE:STM), Markel Corporation (NYSE:MKL), and Realty Income Corporation (NYSE:O). This group of stocks’ market values match LLL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SIVB | 37 | 1451045 | 0 |
| STM | 11 | 118040 | -7 |
| MKL | 20 | 1151533 | 4 |
| O | 16 | 178027 | 1 |
| Average | 21 | 724661 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $725 million. That figure was $867 million in LLL’s case. SVB Financial Group (NASDAQ:SIVB) is the most popular stock in this table. On the other hand STMicroelectronics N.V. (NYSE:STM) is the least popular one with only 11 bullish hedge fund positions. L-3 Technologies, Inc. (NYSE:LLL) 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. In this regard SIVB might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
