We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards L Brands Inc (NYSE:LB).
L Brands Inc (NYSE:LB) was in 36 hedge funds’ portfolios at the end of September. LB shareholders have witnessed an increase in hedge fund interest of late. There were 30 hedge funds in our database with LB holdings at the end of the previous quarter. Our calculations also showed that LB 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.
Why do we pay any attention at all to hedge fund sentiment? 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.
Thomas Bancroft of Makaira Partners
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. Let’s take a glance at the fresh hedge fund action regarding L Brands Inc (NYSE:LB).
What have hedge funds been doing with L Brands Inc (NYSE:LB)?
At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LB over the last 17 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness’s AQR Capital Management has the most valuable position in L Brands Inc (NYSE:LB), worth close to $71.7 million, comprising 0.1% of its total 13F portfolio. On AQR Capital Management’s heels is Renaissance Technologies holding a $69.6 million position; 0.1% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism comprise Thomas Bancroft’s Makaira Partners, Ray Dalio’s Bridgewater Associates and David E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Barington Capital Group allocated the biggest weight to L Brands Inc (NYSE:LB), around 14.86% of its portfolio. Okumus Fund Management is also relatively very bullish on the stock, earmarking 8.85 percent of its 13F equity portfolio to LB.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most outsized position in L Brands Inc (NYSE:LB). Arrowstreet Capital had $22.2 million invested in the company at the end of the quarter. Steven Tananbaum’s GoldenTree Asset Management also initiated a $18.1 million position during the quarter. The other funds with new positions in the stock are Lee Ainslie’s Maverick Capital, Steven Boyd’s Armistice Capital, and Marc Lasry’s Avenue Capital.
Let’s check out hedge fund activity in other stocks similar to L Brands Inc (NYSE:LB). We will take a look at Tripadvisor Inc (NASDAQ:TRIP), Flex Ltd. (NASDAQ:FLEX), Leggett & Platt, Incorporated (NYSE:LEG), and ITT Inc. (NYSE:ITT). This group of stocks’ market valuations are closest to LB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRIP | 29 | 1050535 | 3 |
| FLEX | 31 | 1478106 | -3 |
| LEG | 10 | 53164 | 1 |
| ITT | 20 | 516984 | -5 |
| Average | 22.5 | 774697 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $775 million. That figure was $542 million in LB’s case. Flex Ltd. (NASDAQ:FLEX) is the most popular stock in this table. On the other hand Leggett & Platt, Incorporated (NYSE:LEG) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks L Brands Inc (NYSE:LB) is more popular among hedge funds. 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 LB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LB were disappointed as the stock returned -0.4% 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.
