Is Lloyds Banking Group PLC (ADR) (LYG) Going to Burn These Hedge Funds?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Lloyds Banking Group PLC (ADR) (NYSE:LYG).

Is Lloyds Banking Group PLC (ADR) (NYSE:LYG) a buy right now? Prominent investors are in a bearish mood. The stock’s 15% drop in the third quarter, caused some investors to head to the exits and the number of bullish hedge fund bets as trimmed by 5. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as BHP Billiton plc (ADR) (NYSE:BBL), AstraZeneca plc (ADR) (NYSE:AZN), and Royal Bank of Canada (USA) (NYSE:RY) to gather more data points.

According to most traders, hedge funds are assumed to be slow, outdated financial tools of years past. While there are over 8000 funds with their doors open at present, Our researchers hone in on the crème de la crème of this group, about 700 funds. Most estimates calculate that this group of people have their hands on most of the smart money’s total capital, and by watching their finest investments, Insider Monkey has discovered many investment strategies that have historically defeated Mr. Market. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Now, let’s view the fresh action surrounding Lloyds Banking Group PLC (ADR) (NYSE:LYG).

Hedge fund activity in Lloyds Banking Group PLC (ADR) (NYSE:LYG)

In this way, at the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 38% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the most valuable position in Lloyds Banking Group PLC (ADR) (NYSE:LYG). Fisher Asset Management has an $392 million position in the stock, comprising 0.8% of its 13F portfolio. On Fisher Asset Management’s heels is Jim Simons’ Renaissance Technologies, with an $5.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that hold long positions comprise J. Alan Reid, Jr.’s Forward Management, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group.

Due to the fact that Lloyds Banking Group PLC (ADR) (NYSE:LYG) has experienced a declining sentiment from hedge fund managers, it’s safe to say that there lies a certain “tier” of money managers that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest investment of all the hedgies monitored by Insider Monkey, worth about $1.6 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also cut its stock, about $0.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to Lloyds Banking Group PLC (ADR) (NYSE:LYG). These stocks are BHP Billiton plc (ADR) (NYSE:BBL), AstraZeneca plc (ADR) (NYSE:AZN), Royal Bank of Canada (USA) (NYSE:RY), and United Technologies Corporation (NYSE:UTX). This group of stocks’ market valuations match LYG’s market valuation.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $934 million, considerably higher than the $403 million in LYG’s case. United Technologies Corporation (NYSE:UTX) is the most popular stock in this table, while BHP Billiton plc (ADR) (NYSE:BBL) is the least popular one with only 4 bullish hedge fund positions. Lloyds Banking Group PLC (ADR) (NYSE:LYG) 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 UTX might be a better candidate to consider a long position.