Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Ladder Capital Corp (NYSE:LADR) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is Ladder Capital Corp (NYSE:LADR) the right pick for your portfolio? The best stock pickers are in a pessimistic mood. The number of long hedge fund positions retreated by 2 lately. Our calculations also showed that LADR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Minhua Zhang of Weld Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the recent hedge fund action surrounding Ladder Capital Corp (NYSE:LADR).
Hedge fund activity in Ladder Capital Corp (NYSE:LADR)
Heading into the first quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LADR over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Ladder Capital Corp (NYSE:LADR) was held by Millennium Management, which reported holding $19.8 million worth of stock at the end of September. It was followed by Clough Capital Partners with a $15.6 million position. Other investors bullish on the company included Renaissance Technologies, Marathon Asset Management, and Winton Capital Management. In terms of the portfolio weights assigned to each position Marathon Asset Management allocated the biggest weight to Ladder Capital Corp (NYSE:LADR), around 2.82% of its 13F portfolio. Clough Capital Partners is also relatively very bullish on the stock, setting aside 1.33 percent of its 13F equity portfolio to LADR.
Since Ladder Capital Corp (NYSE:LADR) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of hedge funds who sold off their entire stakes heading into Q4. Intriguingly, Minhua Zhang’s Weld Capital Management said goodbye to the biggest stake of the 750 funds tracked by Insider Monkey, totaling an estimated $0.3 million in stock. Gavin Saitowitz and Cisco J. del Valle’s fund, Springbok Capital, also sold off its stock, about $0.2 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Ladder Capital Corp (NYSE:LADR) but similarly valued. These stocks are WillScot Corporation (NASDAQ:WSC), Asbury Automotive Group, Inc. (NYSE:ABG), Canada Goose Holdings Inc. (NYSE:GOOS), and Arcosa, Inc. (NYSE:ACA). All of these stocks’ market caps are closest to LADR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WSC | 28 | 336936 | 4 |
| ABG | 24 | 362588 | 2 |
| GOOS | 20 | 378578 | 5 |
| ACA | 20 | 247153 | -8 |
| Average | 23 | 331314 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $331 million. That figure was $61 million in LADR’s case. WillScot Corporation (NASDAQ:WSC) is the most popular stock in this table. On the other hand Canada Goose Holdings Inc. (NYSE:GOOS) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Ladder Capital Corp (NYSE:LADR) is even less popular than GOOS. Hedge funds dodged a bullet by taking a bearish stance towards LADR. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately LADR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); LADR investors were disappointed as the stock returned -76.9% during the same time 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 most of these stocks already outperformed the market so far in 2020.
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.
