Were Hedge Funds Right About Lyft, Inc. (LYFT)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtLyft, Inc. (NASDAQ:LYFT) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Lyft, Inc. (NASDAQ:LYFT) has experienced a decrease in enthusiasm from smart money lately. Our calculations also showed that LYFT 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind let’s view the key hedge fund action surrounding Lyft, Inc. (NASDAQ:LYFT).

How have hedgies been trading Lyft, Inc. (NASDAQ:LYFT)?

At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the previous quarter. By comparison, 71 hedge funds held shares or bullish call options in LYFT a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

The largest stake in Lyft, Inc. (NASDAQ:LYFT) was held by Citadel Investment Group, which reported holding $127.5 million worth of stock at the end of September. It was followed by Senator Investment Group with a $68.1 million position. Other investors bullish on the company included Light Street Capital, Citadel Investment Group, and Alkeon Capital Management. In terms of the portfolio weights assigned to each position Tenzing Global Investors allocated the biggest weight to Lyft, Inc. (NASDAQ:LYFT), around 5.93% of its 13F portfolio. Glade Brook Capital Partners is also relatively very bullish on the stock, setting aside 3.83 percent of its 13F equity portfolio to LYFT.

Because Lyft, Inc. (NASDAQ:LYFT) has witnessed a decline in interest from hedge fund managers, logic holds that there is a sect of money managers that slashed their entire stakes in the first quarter. It’s worth mentioning that Alexander Mitchell’s Scopus Asset Management sold off the largest stake of the 750 funds followed by Insider Monkey, worth about $55.4 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $50 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 14 funds in the first quarter.

Let’s check out hedge fund activity in other stocks similar to Lyft, Inc. (NASDAQ:LYFT). These stocks are Packaging Corporation Of America (NYSE:PKG), Graco Inc. (NYSE:GGG), Carnival Corporation & plc (NYSE:CUK), and Banco de Chile (NYSE:BCH). This group of stocks’ market caps resemble LYFT’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $389 million in LYFT’s case. Packaging Corporation Of America (NYSE:PKG) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Lyft, Inc. (NASDAQ:LYFT) is more popular among hedge funds. 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on LYFT, though not to the same extent, as the stock returned 22.9% in Q2 and outperformed the market as well.

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