LendingTree, Inc (TREE): Hedge Funds Withdrawing Support

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of LendingTree, Inc (NASDAQ:TREE) based on that data.

LendingTree, Inc (NASDAQ:TREE) was in 21 hedge funds’ portfolios at the end of the first quarter of 2020. TREE shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. There were 26 hedge funds in our database with TREE holdings at the end of the previous quarter. Our calculations also showed that TREE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 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.

Paul Reeder of PAR Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the key hedge fund action encompassing LendingTree, Inc (NASDAQ:TREE).

How have hedgies been trading LendingTree, Inc (NASDAQ:TREE)?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TREE over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

The largest stake in LendingTree, Inc (NASDAQ:TREE) was held by Citadel Investment Group, which reported holding $33.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $11.1 million position. Other investors bullish on the company included G2 Investment Partners Management, Citadel Investment Group, and PAR Capital Management. In terms of the portfolio weights assigned to each position G2 Investment Partners Management allocated the biggest weight to LendingTree, Inc (NASDAQ:TREE), around 2.96% of its 13F portfolio. P.A.W. CAPITAL PARTNERS is also relatively very bullish on the stock, designating 0.99 percent of its 13F equity portfolio to TREE.

Due to the fact that LendingTree, Inc (NASDAQ:TREE) has experienced declining sentiment from hedge fund managers, logic holds that there were a few funds that elected to cut their positions entirely by the end of the first quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dropped the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising close to $5.4 million in stock, and John Osterweis’s Osterweis Capital Management was right behind this move, as the fund dropped about $1.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 5 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as LendingTree, Inc (NASDAQ:TREE) but similarly valued. These stocks are Lattice Semiconductor Corporation (NASDAQ:LSCC), Assured Guaranty Ltd. (NYSE:AGO), W.R. Grace & Co. (NYSE:GRA), and Amicus Therapeutics, Inc. (NASDAQ:FOLD). This group of stocks’ market caps are closest to TREE’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $635 million. That figure was $74 million in TREE’s case. W.R. Grace & Co. (NYSE:GRA) is the most popular stock in this table. On the other hand Lattice Semiconductor Corporation (NASDAQ:LSCC) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks LendingTree, Inc (NASDAQ:TREE) is even less popular than LSCC. Hedge funds clearly dropped the ball on TREE as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on TREE as the stock returned 50.1% so far in the second quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.