The market has been volatile in the last 6 months as the Federal Reserve continued its rate hikes and then abruptly reversed its stance and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q4 and the beginning of Q1. In this article, we analyze what the smart money thinks of LegacyTexas Financial Group Inc (NASDAQ:LTXB) and find out how it is affected by hedge funds’ moves.
Hedge fund interest in LegacyTexas Financial Group Inc (NASDAQ:LTXB) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare LTXB to other stocks including Columbia Financial, Inc. (NASDAQ:CLBK), Mallinckrodt Public Limited Company (NYSE:MNK), and Abercrombie & Fitch Co. (NYSE:ANF) to get a better sense of its popularity.
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman, GLG Partners
Let’s take a look at the fresh hedge fund action encompassing LegacyTexas Financial Group Inc (NASDAQ:LTXB).
What have hedge funds been doing with LegacyTexas Financial Group Inc (NASDAQ:LTXB)?
Heading into the second quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LTXB over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Millennium Management held the most valuable stake in LegacyTexas Financial Group Inc (NASDAQ:LTXB), which was worth $58 million at the end of the first quarter. On the second spot was Elizabeth Park Capital Management which amassed $11.7 million worth of shares. Moreover, Renaissance Technologies, Balyasny Asset Management, and GLG Partners were also bullish on LegacyTexas Financial Group Inc (NASDAQ:LTXB), allocating a large percentage of their portfolios to this stock.
Seeing as LegacyTexas Financial Group Inc (NASDAQ:LTXB) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of fund managers that decided to sell off their full holdings heading into Q3. Interestingly, Ian Simm’s Impax Asset Management dropped the biggest position of the “upper crust” of funds watched by Insider Monkey, worth an estimated $10.4 million in stock. Cliff Asness’s fund, AQR Capital Management, also cut its stock, about $0.3 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to LegacyTexas Financial Group Inc (NASDAQ:LTXB). We will take a look at Columbia Financial, Inc. (NASDAQ:CLBK), Mallinckrodt Public Limited Company (NYSE:MNK), Abercrombie & Fitch Co. (NYSE:ANF), and ServisFirst Bancshares, Inc. (NASDAQ:SFBS). This group of stocks’ market caps are similar to LTXB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CLBK | 8 | 25859 | 2 |
| MNK | 20 | 280322 | -2 |
| ANF | 25 | 236240 | 3 |
| SFBS | 10 | 10546 | -1 |
| Average | 15.75 | 138242 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $90 million in LTXB’s case. Abercrombie & Fitch Co. (NYSE:ANF) is the most popular stock in this table. On the other hand Columbia Financial, Inc. (NASDAQ:CLBK) is the least popular one with only 8 bullish hedge fund positions. LegacyTexas Financial Group Inc (NASDAQ:LTXB) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on LTXB as the stock returned 7.6% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
