While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Jefferies Financial Group Inc. (NYSE:JEF).
Jefferies Financial Group Inc. (NYSE:JEF) was in 29 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 39. JEF shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. There were 38 hedge funds in our database with JEF holdings at the end of March. Our calculations also showed that JEF isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.
Alex Litowitz of Magnetar Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to analyze the key hedge fund action regarding Jefferies Financial Group Inc. (NYSE:JEF).
Do Hedge Funds Think JEF Is A Good Stock To Buy Now?
At second quarter’s end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -24% from the previous quarter. By comparison, 37 hedge funds held shares or bullish call options in JEF a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, First Pacific Advisors LLC was the largest shareholder of Jefferies Financial Group Inc. (NYSE:JEF), with a stake worth $242.2 million reported as of the end of June. Trailing First Pacific Advisors LLC was Arrowstreet Capital, which amassed a stake valued at $132.1 million. Renaissance Technologies, AQR Capital Management, and Hosking Partners 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 Moerus Capital Management allocated the biggest weight to Jefferies Financial Group Inc. (NYSE:JEF), around 12.6% of its 13F portfolio. Pacifica Capital Investments is also relatively very bullish on the stock, earmarking 8.7 percent of its 13F equity portfolio to JEF.
Since Jefferies Financial Group Inc. (NYSE:JEF) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few hedge funds that decided to sell off their entire stakes last quarter. At the top of the heap, Christian Leone’s Luxor Capital Group sold off the largest investment of the 750 funds monitored by Insider Monkey, comprising close to $17 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dropped its stock, about $9 million worth. These transactions are important to note, as total hedge fund interest dropped by 9 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Jefferies Financial Group Inc. (NYSE:JEF) but similarly valued. These stocks are Advanced Drainage Systems Inc. (NYSE:WMS), Arrow Electronics, Inc. (NYSE:ARW), Polaris Inc. (NYSE:PII), Life Storage, Inc. (NYSE:LSI), Mirati Therapeutics, Inc. (NASDAQ:MRTX), TELUS International (Cda) Inc. (NYSE:TIXT), and Concentrix Corporation (NASDAQ:CNXC). This group of stocks’ market caps are closest to JEF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WMS | 26 | 1337049 | -3 |
| ARW | 30 | 711641 | 7 |
| PII | 20 | 464211 | -9 |
| LSI | 21 | 261561 | -5 |
| MRTX | 55 | 2790783 | -2 |
| TIXT | 6 | 19229 | -4 |
| CNXC | 21 | 601344 | -2 |
| Average | 25.6 | 883688 | -2.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $884 million. That figure was $698 million in JEF’s case. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is the most popular stock in this table. On the other hand TELUS International (Cda) Inc. (NYSE:TIXT) is the least popular one with only 6 bullish hedge fund positions. Jefferies Financial Group Inc. (NYSE:JEF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for JEF is 41.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Hedge funds were also right about betting on JEF as the stock returned 22.6% since the end of Q2 (through 10/15) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Jefferies Financial Group Inc. (NYSE:JEF)
Follow Jefferies Financial Group Inc. (NYSE:JEF)
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Disclosure: None. This article was originally published at Insider Monkey.
