It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like L3Harris Technologies, Inc. (NASDAQ:LHX).
L3Harris Technologies, Inc. (NASDAQ:LHX) investors should be aware of an increase in hedge fund sentiment lately. LHX was in 48 hedge funds’ portfolios at the end of September. There were 30 hedge funds in our database with LHX positions at the end of the previous quarter. Our calculations also showed that LHX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a peek at the recent hedge fund action encompassing L3Harris Technologies, Inc. (NASDAQ:LHX).
What have hedge funds been doing with L3Harris Technologies, Inc. (NASDAQ:LHX)?
At Q3’s end, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 60% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in LHX a year ago. So, let’s review 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 L3Harris Technologies, Inc. (NASDAQ:LHX), with a stake worth $580 million reported as of the end of September. Trailing Citadel Investment Group was Millennium Management, which amassed a stake valued at $287.6 million. GLG Partners, Suvretta Capital Management, and Two Sigma Advisors 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 SAYA Management allocated the biggest weight to L3Harris Technologies, Inc. (NASDAQ:LHX), around 17.58% of its 13F portfolio. Clearfield Capital is also relatively very bullish on the stock, earmarking 17.07 percent of its 13F equity portfolio to LHX.
Consequently, key money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, assembled the most outsized position in L3Harris Technologies, Inc. (NASDAQ:LHX). Citadel Investment Group had $580 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $287.6 million position during the quarter. The other funds with brand new LHX positions are Noam Gottesman’s GLG Partners, Aaron Cowen’s Suvretta Capital Management, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as L3Harris Technologies, Inc. (NASDAQ:LHX) but similarly valued. We will take a look at American Electric Power Company, Inc. (NYSE:AEP), Lloyds Banking Group PLC (NYSE:LYG), Applied Materials, Inc. (NASDAQ:AMAT), and Relx PLC (NYSE:RELX). This group of stocks’ market values resemble LHX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AEP | 31 | 1768736 | 4 |
| LYG | 7 | 52469 | -1 |
| AMAT | 50 | 2356178 | 6 |
| RELX | 6 | 105678 | 3 |
| Average | 23.5 | 1070765 | 3 |
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 $1071 million. That figure was $2487 million in LHX’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 6 bullish hedge fund positions. L3Harris Technologies, Inc. (NASDAQ:LHX) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on LHX as the stock returned 52.1% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.