Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 8 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Lumentum Holdings Inc (NASDAQ:LITE).
Hedge fund interest in Lumentum Holdings Inc (NASDAQ:LITE) 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 LITE to other stocks including PS Business Parks Inc (NYSE:PSB), Smartsheet Inc. (NYSE:SMAR), and Deckers Outdoor Corp (NYSE:DECK) to get a better sense of its popularity.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to take a look at the new hedge fund action regarding Lumentum Holdings Inc (NASDAQ:LITE).
What have hedge funds been doing with Lumentum Holdings Inc (NASDAQ:LITE)?
At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in LITE a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Lumentum Holdings Inc (NASDAQ:LITE), with a stake worth $125.5 million reported as of the end of March. Trailing Citadel Investment Group was Point72 Asset Management, which amassed a stake valued at $111.9 million. AQR Capital Management, Alyeska Investment Group, and Polar Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Lumentum Holdings Inc (NASDAQ:LITE) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few hedge funds that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Peter Muller’s PDT Partners cut the largest position of the 700 funds watched by Insider Monkey, worth about $7.6 million in stock, and Charles Clough’s Clough Capital Partners was right behind this move, as the fund dropped about $7.5 million worth. These bearish behaviors are important to note, as total 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 Lumentum Holdings Inc (NASDAQ:LITE). We will take a look at PS Business Parks Inc (NYSE:PSB), Smartsheet Inc. (NYSE:SMAR), Deckers Outdoor Corp (NYSE:DECK), and Blackstone Mortgage Trust Inc (NYSE:BXMT). This group of stocks’ market caps are closest to LITE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PSB | 12 | 53680 | 0 |
| SMAR | 30 | 568636 | 13 |
| DECK | 29 | 593943 | 8 |
| BXMT | 15 | 101684 | -1 |
| Average | 21.5 | 329486 | 5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $329 million. That figure was $535 million in LITE’s case. Smartsheet Inc. (NYSE:SMAR) is the most popular stock in this table. On the other hand PS Business Parks Inc (NYSE:PSB) is the least popular one with only 12 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately LITE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LITE were disappointed as the stock returned -25.5% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
