It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Lancaster Colony Corporation (NASDAQ:LANC).
Is Lancaster Colony Corporation (NASDAQ:LANC) undervalued? Hedge funds are betting on the stock. The number of long hedge fund positions rose by 6 recently. Our calculations also showed that LANC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). LANC was in 24 hedge funds’ portfolios at the end of September. There were 18 hedge funds in our database with LANC 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.
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Noam Gottesman of GLG 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. We’re going to go over the new hedge fund action surrounding Lancaster Colony Corporation (NASDAQ:LANC).
What does smart money think about Lancaster Colony Corporation (NASDAQ:LANC)?
Heading into the fourth quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in LANC over the last 17 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Lancaster Colony Corporation (NASDAQ:LANC) was held by Renaissance Technologies, which reported holding $88.5 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $36.6 million position. Other investors bullish on the company included GLG Partners, AQR Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to Lancaster Colony Corporation (NASDAQ:LANC), around 0.27% of its portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.21 percent of its 13F equity portfolio to LANC.
As industrywide interest jumped, some big names have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, assembled the largest position in Lancaster Colony Corporation (NASDAQ:LANC). Holocene Advisors had $1.7 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $1.5 million position during the quarter. The other funds with new positions in the stock are Minhua Zhang’s Weld Capital Management, Dmitry Balyasny’s Balyasny Asset Management, and Hoon Kim’s Quantinno Capital.
Let’s check out hedge fund activity in other stocks similar to Lancaster Colony Corporation (NASDAQ:LANC). These stocks are NorthWestern Corporation (NYSE:NWE), Ormat Technologies, Inc. (NYSE:ORA), Eagle Materials, Inc. (NYSE:EXP), and Ternium S.A. (NYSE:TX). This group of stocks’ market valuations are closest to LANC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NWE | 15 | 233336 | 0 |
| ORA | 16 | 193542 | 7 |
| EXP | 36 | 819307 | 0 |
| TX | 8 | 52465 | -6 |
| Average | 18.75 | 324663 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $325 million. That figure was $224 million in LANC’s case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand Ternium S.A. (NYSE:TX) is the least popular one with only 8 bullish hedge fund positions. Lancaster Colony Corporation (NASDAQ:LANC) 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 LANC as the stock returned 14% 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.
