Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Life Storage, Inc. (NYSE:LSI) to find out whether it was one of their high conviction long-term ideas.
Is Life Storage, Inc. (NYSE:LSI) a good stock to buy now? Prominent investors are taking a bearish view. The number of long hedge fund positions went down by 5 in recent months. Our calculations also showed that LSI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). LSI was in 15 hedge funds’ portfolios at the end of the third quarter of 2019. There were 20 hedge funds in our database with LSI positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the latest hedge fund action surrounding Life Storage, Inc. (NYSE:LSI).
How have hedgies been trading Life Storage, Inc. (NYSE:LSI)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in LSI over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Life Storage, Inc. (NYSE:LSI), which was worth $60.1 million at the end of the third quarter. On the second spot was Winton Capital Management which amassed $44.9 million worth of shares. Marshall Wace, Echo Street Capital Management, and Fisher Asset Management 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 Winton Capital Management allocated the biggest weight to Life Storage, Inc. (NYSE:LSI), around 0.53% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, designating 0.38 percent of its 13F equity portfolio to LSI.
Seeing as Life Storage, Inc. (NYSE:LSI) has experienced bearish sentiment from hedge fund managers, logic holds that there is a sect of money managers who sold off their full holdings last quarter. It’s worth mentioning that John Khoury’s Long Pond Capital sold off the largest position of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $53.7 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $36.9 million worth. These moves are interesting, as aggregate hedge fund interest fell by 5 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Life Storage, Inc. (NYSE:LSI). We will take a look at Kirby Corporation (NYSE:KEX), 51job, Inc. (NASDAQ:JOBS), United Microelectronics Corp (NYSE:UMC), and Flowers Foods, Inc. (NYSE:FLO). This group of stocks’ market valuations are similar to LSI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KEX | 20 | 663418 | -3 |
| JOBS | 7 | 18805 | -2 |
| UMC | 13 | 97504 | 1 |
| FLO | 28 | 244376 | 6 |
| Average | 17 | 256026 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $256 million. That figure was $227 million in LSI’s case. Flowers Foods, Inc. (NYSE:FLO) is the most popular stock in this table. On the other hand 51job, Inc. (NASDAQ:JOBS) is the least popular one with only 7 bullish hedge fund positions. Life Storage, Inc. (NYSE:LSI) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 LSI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LSI investors were disappointed as the stock returned 4.9% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
