Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.
Lincoln Electric Holdings, Inc. (NASDAQ:LECO) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds’ portfolios at the end of the fourth quarter of 2018. At the end of this article we will also compare LECO to other stocks including Elastic N.V. (NYSE:ESTC), Parsley Energy Inc (NYSE:PE), and Farfetch Limited (NYSE:FTCH) 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 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 glance at the key hedge fund action encompassing Lincoln Electric Holdings, Inc. (NASDAQ:LECO).
What have hedge funds been doing with Lincoln Electric Holdings, Inc. (NASDAQ:LECO)?
At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LECO over the last 14 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Lincoln Electric Holdings, Inc. (NASDAQ:LECO), with a stake worth $93.2 million reported as of the end of December. Trailing Royce & Associates was Fisher Asset Management, which amassed a stake valued at $84.6 million. Two Sigma Advisors, Precision Path Capital, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Because Lincoln Electric Holdings, Inc. (NASDAQ:LECO) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there exists a select few fund managers who were dropping their positions entirely heading into Q3. At the top of the heap, Ken Griffin’s Citadel Investment Group sold off the largest position of all the hedgies tracked by Insider Monkey, totaling an estimated $34.9 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund sold off about $32 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Lincoln Electric Holdings, Inc. (NASDAQ:LECO) but similarly valued. We will take a look at Elastic N.V. (NYSE:ESTC), Parsley Energy Inc (NYSE:PE), Farfetch Limited (NYSE:FTCH), and Moderna, Inc. (NASDAQ:MRNA). This group of stocks’ market values match LECO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ESTC | 21 | 151738 | 21 |
| PE | 36 | 663470 | -8 |
| FTCH | 18 | 164597 | -10 |
| MRNA | 17 | 380768 | 17 |
| Average | 23 | 340143 | 5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $340 million. That figure was $283 million in LECO’s case. Parsley Energy Inc (NYSE:PE) is the most popular stock in this table. On the other hand Moderna, Inc. (NASDAQ:MRNA) is the least popular one with only 17 bullish hedge fund positions. Lincoln Electric Holdings, Inc. (NASDAQ:LECO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately LECO wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); LECO investors were disappointed as the stock returned 11.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
