Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Lockheed Martin Corporation (NYSE:LMT).
Lockheed Martin Corporation (NYSE:LMT) was in 48 hedge funds’ portfolios at the end of June. LMT has experienced an increase in hedge fund sentiment recently. There were 35 hedge funds in our database with LMT holdings at the end of the previous quarter. Our calculations also showed that LMT isn’t among the 30 most popular stocks among hedge funds.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the key hedge fund action encompassing Lockheed Martin Corporation (NYSE:LMT).
What have hedge funds been doing with Lockheed Martin Corporation (NYSE:LMT)?
At the end of the second quarter, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of 37% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LMT over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Lockheed Martin Corporation (NYSE:LMT) was held by Two Sigma Advisors, which reported holding $315.9 million worth of stock at the end of March. It was followed by Suvretta Capital Management with a $233.5 million position. Other investors bullish on the company included AQR Capital Management, Adage Capital Management, and Citadel Investment Group.
Now, specific money managers were breaking ground themselves. Suvretta Capital Management, managed by Aaron Cowen, established the biggest position in Lockheed Martin Corporation (NYSE:LMT). Suvretta Capital Management had $233.5 million invested in the company at the end of the quarter. Michael Kharitonov and Jon David McAuliffe’s Voleon Capital also made a $43.6 million investment in the stock during the quarter. The following funds were also among the new LMT investors: Alexander Mitchell’s Scopus Asset Management, Robert B. Gillam’s McKinley Capital Management, and Louis Bacon’s Moore Global Investments.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Lockheed Martin Corporation (NYSE:LMT) but similarly valued. We will take a look at Starbucks Corporation (NASDAQ:SBUX), Danaher Corporation (NYSE:DHR), Diageo plc (NYSE:DEO), and GlaxoSmithKline plc (NYSE:GSK). This group of stocks’ market values resemble LMT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SBUX | 49 | 5242004 | 2 |
| DHR | 58 | 2775439 | 0 |
| DEO | 15 | 847063 | -1 |
| GSK | 25 | 1687781 | -4 |
| Average | 36.75 | 2638072 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.75 hedge funds with bullish positions and the average amount invested in these stocks was $2638 million. That figure was $1349 million in LMT’s case. Danaher Corporation (NYSE:DHR) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 15 bullish hedge fund positions. Lockheed Martin Corporation (NYSE:LMT) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on LMT as the stock returned 7.9% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
