We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
LPL Financial Holdings Inc (NASDAQ:LPLA) investors should pay attention to an increase in hedge fund sentiment 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 below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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’ 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.
Ken Griffin of Citadel Investment Group
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to view the new hedge fund action regarding LPL Financial Holdings Inc (NASDAQ:LPLA).
Hedge fund activity in LPL Financial Holdings Inc (NASDAQ:LPLA)
Heading into the fourth quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the second quarter of 2019. On the other hand, there were a total of 35 hedge funds with a bullish position in LPLA a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in LPL Financial Holdings Inc (NASDAQ:LPLA) was held by First Pacific Advisors, which reported holding $213.9 million worth of stock at the end of September. It was followed by Southpoint Capital Advisors with a $122.9 million position. Other investors bullish on the company included Samlyn Capital, Citadel Investment Group, and 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 portfolio. Junto Capital Management is also relatively very bullish on the stock, setting aside 5.02 percent of its 13F equity portfolio to LPLA.
Now, some big names have jumped into LPL Financial Holdings Inc (NASDAQ:LPLA) headfirst. Samlyn Capital, managed by Robert Pohly, created 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 made a $11.7 million investment in the stock 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 now review hedge fund activity in other stocks – not necessarily in the same industry as LPL Financial Holdings Inc (NASDAQ:LPLA) but similarly valued. These stocks are LATAM Airlines Group S.A. (NYSE:LTM), Monolithic Power Systems, Inc. (NASDAQ:MPWR), CubeSmart (NYSE:CUBE), and Etsy Inc (NASDAQ:ETSY). This group of stocks’ market values are similar to LPLA’s market value.
| 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on LPLA as the stock returned 13.1% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
