Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and 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. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. With this in mind let’s see whether Lumentum Holdings Inc (NASDAQ:LITE) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Lumentum Holdings Inc (NASDAQ:LITE) has experienced an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that LITE 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).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Ken Fisher of Fisher Asset Management
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. With all of this in mind we’re going to check out the latest hedge fund action regarding Lumentum Holdings Inc (NASDAQ:LITE).
How are hedge funds trading Lumentum Holdings Inc (NASDAQ:LITE)?
Heading into the first quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LITE over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Lumentum Holdings Inc (NASDAQ:LITE) was held by Renaissance Technologies, which reported holding $135.8 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $82.7 million position. Other investors bullish on the company included Citadel Investment Group, Point72 Asset Management, and Cavalry Asset Management. In terms of the portfolio weights assigned to each position AlphaOne Capital Partners allocated the biggest weight to Lumentum Holdings Inc (NASDAQ:LITE), around 11.33% of its 13F portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, setting aside 6.03 percent of its 13F equity portfolio to LITE.
As industrywide interest jumped, some big names have been driving this bullishness. Renaissance Technologies created the largest position in Lumentum Holdings Inc (NASDAQ:LITE). Renaissance Technologies had $135.8 million invested in the company at the end of the quarter. Michael Rockefeller and Karl Kroeker’s Woodline Partners also initiated a $22 million position during the quarter. The other funds with new positions in the stock are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, and Brandon Haley’s Holocene Advisors.
Let’s also examine hedge fund activity in other stocks similar to Lumentum Holdings Inc (NASDAQ:LITE). We will take a look at Cullen/Frost Bankers, Inc. (NYSE:CFR), Knight Transportation Inc. (NYSE:KNX), CubeSmart (NYSE:CUBE), and EnCana Corporation (NYSE:ECA). This group of stocks’ market values resemble LITE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CFR | 18 | 58785 | -4 |
| KNX | 26 | 342433 | 3 |
| CUBE | 27 | 270281 | 0 |
| ECA | 23 | 157151 | -3 |
| Average | 23.5 | 207163 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $207 million. That figure was $490 million in LITE’s case. CubeSmart (NYSE:CUBE) is the most popular stock in this table. On the other hand Cullen/Frost Bankers, Inc. (NYSE:CFR) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Lumentum Holdings Inc (NASDAQ:LITE) 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 but still managed to beat the market by 5.5 percentage points. Hedge funds were also right about betting on LITE as the stock returned -5.4% so far in Q1 (through March 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
