Is LendingClub Corporation (NYSE:LC) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
LendingClub Corporation (NYSE:LC) was in 8 hedge funds’ portfolios at the end of September. LC investors should be aware of a decrease in support from the world’s most elite money managers in recent months. There were 10 hedge funds in our database with LC holdings at the end of the previous quarter. Our calculations also showed that LC 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chase Coleman of Tiger Global
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 analyze the fresh hedge fund action regarding LendingClub Corporation (NYSE:LC).
What does smart money think about LendingClub Corporation (NYSE:LC)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in LC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, PDT Partners held the most valuable stake in LendingClub Corporation (NYSE:LC), which was worth $1.4 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $0.8 million worth of shares. Tiger Global Management, Ellington, and Citadel Investment Group 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 PDT Partners allocated the biggest weight to LendingClub Corporation (NYSE:LC), around 0.08% of its 13F portfolio. CSat Investment Advisory is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to LC.
Due to the fact that LendingClub Corporation (NYSE:LC) has faced falling interest from hedge fund managers, logic holds that there lies a certain “tier” of hedge funds that decided to sell off their full holdings in the third quarter. At the top of the heap, Cliff Asness’s AQR Capital Management dumped the biggest position of all the hedgies followed by Insider Monkey, valued at close to $1 million in stock. Chase Coleman’s fund, Tiger Global Management, also sold off its stock, about $0.9 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to LendingClub Corporation (NYSE:LC). These stocks are Central European Media Enterprises Ltd. (NASDAQ:CETV), The Marcus Corporation (NYSE:MCS), Coeur Mining, Inc. (NYSE:CDE), and AZZ Inc. (NYSE:AZZ). This group of stocks’ market values are closest to LC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CETV | 10 | 13280 | 2 |
| MCS | 10 | 47370 | -4 |
| CDE | 14 | 51790 | 4 |
| AZZ | 15 | 45998 | 1 |
| Average | 12.25 | 39610 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $4 million in LC’s case. AZZ Inc. (NYSE:AZZ) is the most popular stock in this table. On the other hand Central European Media Enterprises Ltd. (NASDAQ:CETV) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks LendingClub Corporation (NYSE:LC) is even less popular than CETV. Hedge funds dodged a bullet by taking a bearish stance towards LC. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); LC investors were disappointed as the stock returned 5.6% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
