We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Lancaster Colony Corporation (NASDAQ:LANC).
Is Lancaster Colony Corporation (NASDAQ:LANC) going to take off soon? Money managers are becoming less confident. The number of long hedge fund bets were trimmed by 10 lately. Our calculations also showed that LANC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). LANC was in 16 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 26 hedge funds in our database with LANC positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Fisher of Fisher Asset Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the key hedge fund action regarding Lancaster Colony Corporation (NASDAQ:LANC).
Hedge fund activity in Lancaster Colony Corporation (NASDAQ:LANC)
Heading into the first quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -38% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in LANC a year ago. So, let’s see 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 Lancaster Colony Corporation (NASDAQ:LANC), which was worth $93.1 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $40.6 million worth of shares. AQR Capital Management, GLG Partners, and Citadel Investment Group 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 Renaissance Technologies allocated the biggest weight to Lancaster Colony Corporation (NASDAQ:LANC), around 0.07% of its 13F portfolio. Maverick Capital is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to LANC.
Judging by the fact that Lancaster Colony Corporation (NASDAQ:LANC) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedge funds that elected to cut their entire stakes in the third quarter. Interestingly, Israel Englander’s Millennium Management said goodbye to the biggest stake of the 750 funds followed by Insider Monkey, valued at about $5.1 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $3.7 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 10 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to Lancaster Colony Corporation (NASDAQ:LANC). These stocks are ACI Worldwide Inc (NASDAQ:ACIW), Enable Midstream Partners LP (NYSE:ENBL), Nomad Foods Limited Ordinary Shares (NYSE:NOMD), and Dicks Sporting Goods Inc (NYSE:DKS). All of these stocks’ market caps are closest to LANC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ACIW | 20 | 330169 | -1 |
| ENBL | 4 | 38682 | -1 |
| NOMD | 35 | 520278 | -5 |
| DKS | 26 | 515908 | 0 |
| Average | 21.25 | 351259 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $351 million. That figure was $204 million in LANC’s case. Nomad Foods Limited Ordinary Shares (NYSE:NOMD) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 4 bullish hedge fund positions. Lancaster Colony Corporation (NASDAQ:LANC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on LANC, though not to the same extent, as the stock returned -18.7% during the same time period and outperformed the market.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
