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 Jefferies Financial Group Inc. (NYSE:JEF).
Jefferies Financial Group Inc. (NYSE:JEF) investors should pay attention to an increase in hedge fund sentiment recently. JEF was in 39 hedge funds’ portfolios at the end of September. There were 34 hedge funds in our database with JEF positions at the end of the previous quarter. Our calculations also showed that JEF isn’t among the 30 most popular stocks among hedge funds.
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.
Let’s take a glance at the fresh hedge fund action surrounding Jefferies Financial Group Inc. (NYSE:JEF).
How are hedge funds trading Jefferies Financial Group Inc. (NYSE:JEF)?
Heading into the fourth quarter of 2018, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in JEF over the last 13 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Jefferies Financial Group Inc. (NYSE:JEF) was held by First Pacific Advisors LLC, which reported holding $426.8 million worth of stock at the end of September. It was followed by Arlington Value Capital with a $78.4 million position. Other investors bullish on the company included Citadel Investment Group, Prana Capital Management, and Private Capital Management.
Consequently, key hedge funds were leading the bulls’ herd. Private Capital Management, managed by Gregg J. Powers, created the biggest position in Jefferies Financial Group Inc. (NYSE:JEF). Private Capital Management had $23.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $1.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Gregg Moskowitz’s Interval Partners, George Hall’s Clinton Group, and Bruce Kovner’s Caxton Associates LP.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Jefferies Financial Group Inc. (NYSE:JEF) but similarly valued. We will take a look at Affiliated Managers Group, Inc. (NYSE:AMG), Ubiquiti Networks Inc (NASDAQ:UBNT), Enable Midstream Partners LP (NYSE:ENBL), and Carlisle Companies, Inc. (NYSE:CSL). This group of stocks’ market valuations resemble JEF’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMG | 32 | 732597 | 6 |
| UBNT | 16 | 336685 | 1 |
| ENBL | 4 | 12258 | 1 |
| CSL | 22 | 460444 | 6 |
| Average | 18.5 | 385496 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $385 million. That figure was $725 million in JEF’s case. Affiliated Managers Group, Inc. (NYSE:AMG) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Jefferies Financial Group Inc. (NYSE:JEF) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
