Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of LPL Financial Holdings Inc (NASDAQ:LPLA).
Is LPL Financial Holdings Inc (NASDAQ:LPLA) a buy, sell, or hold? The smart money is betting on the stock. The number of long hedge fund bets moved up by 4 recently. Our calculations also showed that LPLA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 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.
Sander Gerber of Hudson Bay Capital
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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind let’s take a look at the new hedge fund action encompassing LPL Financial Holdings Inc (NASDAQ:LPLA).
Hedge fund activity in LPL Financial Holdings Inc (NASDAQ:LPLA)
At Q4’s end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in LPLA a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Samlyn Capital, managed by Robert Pohly, holds the number one position in LPL Financial Holdings Inc (NASDAQ:LPLA). Samlyn Capital has a $317.7 million position in the stock, comprising 6.7% of its 13F portfolio. On Samlyn Capital’s heels is First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, which holds a $175 million position; 1.7% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism encompass John Smith Clark’s Southpoint Capital Advisors, Ken Griffin’s Citadel Investment Group and James Parsons’s Junto Capital Management. In terms of the portfolio weights assigned to each position Engle Capital allocated the biggest weight to LPL Financial Holdings Inc (NASDAQ:LPLA), around 11.9% of its 13F portfolio. Highline Capital Management is also relatively very bullish on the stock, designating 7.53 percent of its 13F equity portfolio to LPLA.
Consequently, some big names have been driving this bullishness. Highline Capital Management, managed by Jacob Doft, assembled the most valuable position in LPL Financial Holdings Inc (NASDAQ:LPLA). Highline Capital Management had $47.6 million invested in the company at the end of the quarter. Usman Waheed’s Strycker View Capital also initiated a $12.5 million position during the quarter. The other funds with brand new LPLA positions are Sander Gerber’s Hudson Bay Capital Management, Ray Dalio’s Bridgewater Associates, and Peter Muller’s PDT Partners.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as LPL Financial Holdings Inc (NASDAQ:LPLA) but similarly valued. These stocks are Tapestry, Inc. (NYSE:TPR), Dropbox, Inc. (NASDAQ:DBX), Algonquin Power & Utilities Corp. (NYSE:AQN), and CyrusOne Inc (NASDAQ:CONE). This group of stocks’ market caps are closest to LPLA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TPR | 40 | 543774 | 14 |
| DBX | 46 | 839623 | 4 |
| AQN | 13 | 248252 | -3 |
| CONE | 32 | 345805 | 8 |
| Average | 32.75 | 494364 | 5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $494 million. That figure was $1381 million in LPLA’s case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 13 bullish hedge fund positions. LPL Financial Holdings Inc (NASDAQ:LPLA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately LPLA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LPLA were disappointed as the stock returned -39.1% during the same time period 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
