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. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 LexinFintech Holdings Ltd. (NASDAQ:LX).
LexinFintech Holdings Ltd. (NASDAQ:LX) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 15 hedge funds’ portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Heartland Express, Inc. (NASDAQ:HTLD), Vector Group Ltd (NYSE:VGR), and Edgewell Personal Care Company (NYSE:EPC) to gather more data points. Our calculations also showed that LX 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’ 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
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to view the recent hedge fund action regarding LexinFintech Holdings Ltd. (NASDAQ:LX).
How have hedgies been trading LexinFintech Holdings Ltd. (NASDAQ:LX)?
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in LX over the last 17 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, GLG Partners, managed by Noam Gottesman, holds the number one position in LexinFintech Holdings Ltd. (NASDAQ:LX). GLG Partners has a $24.1 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, with a $19.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that hold long positions comprise Nitin Saigal and Dan Jacobs’s Kora Management, Lee Ainslie’s Maverick Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Kora Management allocated the biggest weight to LexinFintech Holdings Ltd. (NASDAQ:LX), around 3% of its 13F portfolio. Sensato Capital Management is also relatively very bullish on the stock, setting aside 0.97 percent of its 13F equity portfolio to LX.
Because LexinFintech Holdings Ltd. (NASDAQ:LX) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedge funds that elected to cut their full holdings heading into Q4. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace dropped the biggest position of the 750 funds tracked by Insider Monkey, valued at close to $8.6 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dropped its stock, about $0.7 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as LexinFintech Holdings Ltd. (NASDAQ:LX) but similarly valued. These stocks are Heartland Express, Inc. (NASDAQ:HTLD), Vector Group Ltd (NYSE:VGR), Edgewell Personal Care Company (NYSE:EPC), and SPX Corporation (NYSE:SPXC). All of these stocks’ market caps resemble LX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HTLD | 17 | 46403 | 4 |
| VGR | 17 | 170355 | -1 |
| EPC | 18 | 164888 | -7 |
| SPXC | 18 | 77081 | 2 |
| Average | 17.5 | 114682 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $75 million in LX’s case. Edgewell Personal Care Company (NYSE:EPC) is the most popular stock in this table. On the other hand Heartland Express, Inc. (NASDAQ:HTLD) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks LexinFintech Holdings Ltd. (NASDAQ:LX) is even less popular than HTLD. Hedge funds clearly dropped the ball on LX as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on LX as the stock returned 18.7% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
