Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Lincoln National Corporation (NYSE:LNC) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.
Is Lincoln National Corporation (NYSE:LNC) ready to rally soon? Money managers are getting less optimistic. The number of long hedge fund positions were trimmed by 1 lately. Our calculations also showed that LNC 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).
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.
Cliff Asness of AQR Capital Management
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. Keeping this in mind let’s take a look at the fresh hedge fund action surrounding Lincoln National Corporation (NYSE:LNC).
How are hedge funds trading Lincoln National Corporation (NYSE:LNC)?
At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LNC over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Lyrical Asset Management, managed by Andrew Wellington and Jeff Keswin, holds the biggest position in Lincoln National Corporation (NYSE:LNC). Lyrical Asset Management has a $289.3 million position in the stock, comprising 4.4% of its 13F portfolio. Sitting at the No. 2 spot is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $145.6 million position; 0.3% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism consist of Cliff Asness’s AQR Capital Management, Ken Griffin’s Citadel Investment Group and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position RR Partners allocated the biggest weight to Lincoln National Corporation (NYSE:LNC), around 9.03% of its 13F portfolio. Capital Returns Management is also relatively very bullish on the stock, dishing out 5.28 percent of its 13F equity portfolio to LNC.
Seeing as Lincoln National Corporation (NYSE:LNC) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedge funds who were dropping their positions entirely in the third quarter. At the top of the heap, John Overdeck and David Siegel’s Two Sigma Advisors dumped the largest position of all the hedgies tracked by Insider Monkey, valued at an estimated $14.5 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund dropped about $10.8 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Lincoln National Corporation (NYSE:LNC). We will take a look at Masco Corporation (NYSE:MAS), American Airlines Group Inc (NASDAQ:AAL), Lyft, Inc. (NASDAQ:LYFT), and DENTSPLY SIRONA Inc. (NASDAQ:XRAY). This group of stocks’ market valuations resemble LNC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MAS | 46 | 1007912 | 1 |
| AAL | 38 | 1781432 | 4 |
| LYFT | 33 | 880680 | -4 |
| XRAY | 28 | 1628924 | -1 |
| Average | 36.25 | 1324737 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $1325 million. That figure was $1142 million in LNC’s case. Masco Corporation (NYSE:MAS) is the most popular stock in this table. On the other hand DENTSPLY SIRONA Inc. (NASDAQ:XRAY) is the least popular one with only 28 bullish hedge fund positions. Lincoln National Corporation (NYSE:LNC) 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 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. Unfortunately LNC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LNC investors were disappointed as the stock returned 18.8% in 2019 (as of 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
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.
