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. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on LCI Industries (NYSE:LCII).
LCI Industries (NYSE:LCII) has seen an increase in activity from the world’s largest hedge funds in recent months. LCII was in 17 hedge funds’ portfolios at the end of December. There were 16 hedge funds in our database with LCII holdings at the end of the previous quarter. Our calculations also showed that LCII 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).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let’s take a look at the fresh hedge fund action encompassing LCI Industries (NYSE:LCII).
What does smart money think about LCI Industries (NYSE:LCII)?
Heading into the first quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the third quarter of 2019. On the other hand, there were a total of 8 hedge funds with a bullish position in LCII a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Royce & Associates held the most valuable stake in LCI Industries (NYSE:LCII), which was worth $67.7 million at the end of the third quarter. On the second spot was Motley Fool Asset Management which amassed $12.2 million worth of shares. Arrowstreet Capital, Citadel Investment Group, and AQR Capital Management 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 Motley Fool Asset Management allocated the biggest weight to LCI Industries (NYSE:LCII), around 1.31% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.6 percent of its 13F equity portfolio to LCII.
Now, some big names were leading the bulls’ herd. Intrinsic Edge Capital, managed by Mark Coe, assembled the most valuable position in LCI Industries (NYSE:LCII). Intrinsic Edge Capital had $4.3 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $2.5 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Schonfeld Strategic Advisors, and Peter Muller’s PDT Partners.
Let’s go over hedge fund activity in other stocks similar to LCI Industries (NYSE:LCII). These stocks are Cronos Group Inc. (NASDAQ:CRON), Atlantica Yield plc (NASDAQ:AY), Fox Factory Holding Corp (NASDAQ:FOXF), and PennyMac Financial Services Inc (NYSE:PFSI). This group of stocks’ market valuations resemble LCII’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRON | 10 | 90321 | -2 |
| AY | 16 | 122712 | -3 |
| FOXF | 13 | 15755 | -1 |
| PFSI | 16 | 135422 | 1 |
| Average | 13.75 | 91053 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $127 million in LCII’s case. Atlantica Yield plc (NASDAQ:AY) is the most popular stock in this table. On the other hand Cronos Group Inc. (NASDAQ:CRON) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks LCI Industries (NYSE:LCII) is more popular among hedge funds. 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 and still beat the market by 5.5 percentage points. Unfortunately LCII wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LCII were disappointed as the stock returned -36.9% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
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.
