How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Ladenburg Thalmann Financial Services (NYSEAMEX:LTS).
Ladenburg Thalmann Financial Services (NYSEAMEX:LTS) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of the third quarter of 2018. At the end of this article we will also compare LTS to other stocks including Container Store Group Inc (NYSE:TCS), eHealth, Inc. (NASDAQ:EHTH), and Nuveen New Jersey Quality Municipal Income Fund (NYSE:NXJ) to get a better sense of its popularity.
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 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 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 our short portfolio.
We’re going to take a glance at the recent hedge fund action encompassing Ladenburg Thalmann Financial Services (NYSEAMEX:LTS).
How have hedgies been trading Ladenburg Thalmann Financial Services (NYSEAMEX:LTS)?
Heading into the fourth quarter of 2018, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, no change from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LTS over the last 13 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Renaissance Technologies, managed by Jim Simons, holds the number one position in Ladenburg Thalmann Financial Services (NYSEAMEX:LTS). Renaissance Technologies has a $1.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is D. E. Shaw of D E Shaw, with a $0.7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish contain Ken Griffin’s Citadel Investment Group, Paul Marshall and Ian Wace’s Marshall Wace LLP and Israel Englander’s Millennium Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Coe Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Marshall Wace LLP).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ladenburg Thalmann Financial Services (NYSEAMEX:LTS) but similarly valued. We will take a look at Container Store Group Inc (NYSE:TCS), eHealth, Inc. (NASDAQ:EHTH), Nuveen New Jersey Quality Municipal Income Fund (NYSE:NXJ), and The Bancorp, Inc. (NASDAQ:TBBK). This group of stocks’ market values are similar to LTS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TCS | 14 | 33610 | 3 |
| EHTH | 19 | 213063 | 6 |
| NXJ | 2 | 1233 | -1 |
| TBBK | 13 | 83989 | -1 |
| Average | 12 | 82974 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $2 million in LTS’s case. eHealth, Inc. (NASDAQ:EHTH) is the most popular stock in this table. On the other hand Nuveen New Jersey Quality Municipal Income Fund (NYSE:NXJ) is the least popular one with only 2 bullish hedge fund positions. Ladenburg Thalmann Financial Services (NYSEAMEX:LTS) 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 EHTH might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
