Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed over the past few years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards Legacy Reserves LP (NASDAQ:LGCY).
Legacy Reserves LP (NASDAQ:LGCY) was in 6 hedge funds’ portfolios at the end of the third quarter of 2018. LGCY has seen an increase in enthusiasm from smart money recently. There were 5 hedge funds in our database with LGCY positions at the end of the previous quarter. Our calculations also showed that LGCY isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s go over the fresh hedge fund action encompassing Legacy Reserves LP (NASDAQ:LGCY).
How are hedge funds trading Legacy Reserves LP (NASDAQ:LGCY)?
Heading into the fourth quarter of 2018, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in LGCY over the last 13 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, Fir Tree held the most valuable stake in Legacy Reserves LP (NASDAQ:LGCY), which was worth $9.3 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $2.4 million worth of shares. Moreover, Navellier & Associates, Fondren Management, and Millennium Management were also bullish on Legacy Reserves LP (NASDAQ:LGCY), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Fondren Management, managed by Bradley LouisáRadoff, initiated the largest position in Legacy Reserves LP (NASDAQ:LGCY). Fondren Management had $0.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.2 million position during the quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Legacy Reserves LP (NASDAQ:LGCY) but similarly valued. We will take a look at Citi Trends, Inc. (NASDAQ:CTRN), Castlight Health Inc (NYSE:CSLT), Denison Mines Corp (NYSEAMEX:DNN), and MFS Charter Income Trust (NYSE:MCR). This group of stocks’ market valuations are similar to LGCY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CTRN | 14 | 46858 | 1 |
| CSLT | 11 | 15669 | -1 |
| DNN | 3 | 423 | 0 |
| MCR | 1 | 662 | -1 |
| Average | 7.25 | 15903 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $13 million in LGCY’s case. Citi Trends, Inc. (NASDAQ:CTRN) is the most popular stock in this table. On the other hand MFS Charter Income Trust (NYSE:MCR) is the least popular one with only 1 bullish hedge fund positions. Legacy Reserves LP (NASDAQ:LGCY) 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. In this regard CTRN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
