We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Lazard Ltd (NYSE:LAZ).
Hedge fund interest in Lazard Ltd (NYSE:LAZ) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Newfield Exploration Co. (NYSE:NFX), Dr. Reddy’s Laboratories Limited (NYSE:RDY), and Starwood Property Trust, Inc. (NYSE:STWD) to gather more data points.
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 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.
We’re going to analyze the key hedge fund action encompassing Lazard Ltd (NYSE:LAZ).
How are hedge funds trading Lazard Ltd (NYSE:LAZ)?
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, no change from the previous quarter. The graph below displays the number of hedge funds with bullish position in LAZ over the last 13 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Ariel Investments was the largest shareholder of Lazard Ltd (NYSE:LAZ), with a stake worth $218.5 million reported as of the end of September. Trailing Ariel Investments was Fisher Asset Management, which amassed a stake valued at $75.4 million. Royce & Associates, Southeastern Asset Management, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Lazard Ltd (NYSE:LAZ) has faced falling interest from the aggregate hedge fund industry, logic holds that there is a sect of hedge funds who sold off their entire stakes in the third quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest stake of the 700 funds followed by Insider Monkey, comprising about $6.7 million in stock, and Peter Seuss’s Prana Capital Management was right behind this move, as the fund dumped about $6 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Lazard Ltd (NYSE:LAZ). These stocks are Newfield Exploration Co. (NYSE:NFX), Dr. Reddy’s Laboratories Limited (NYSE:RDY), Starwood Property Trust, Inc. (NYSE:STWD), and Companhia Brasileira de Distrib. (NYSE:CBD). This group of stocks’ market caps are closest to LAZ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NFX | 39 | 375919 | 16 |
| RDY | 9 | 72351 | -2 |
| STWD | 21 | 187809 | 2 |
| CBD | 10 | 47763 | 3 |
| Average | 19.75 | 170961 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $171 million. That figure was $469 million in LAZ’s case. Newfield Exploration Co. (NYSE:NFX) is the most popular stock in this table. On the other hand Dr. Reddy’s Laboratories Limited (NYSE:RDY) is the least popular one with only 9 bullish hedge fund positions. Lazard Ltd (NYSE:LAZ) 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 NFX might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
