Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Lincoln National Corporation (NYSE:LNC)? The smart money sentiment can provide an answer to this question.
Lincoln National Corporation (NYSE:LNC) was in 34 hedge funds’ portfolios at the end of June. The all time high for this statistics is 40. LNC has seen an increase in activity from the world’s largest hedge funds recently. There were 26 hedge funds in our database with LNC holdings at the end of March. Our calculations also showed that LNC isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Sander Gerber of Hudson Bay Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best high dividend stocks to buy to identify high dividend stocks with upside potential in this low interest rate environment. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to go over the key hedge fund action encompassing Lincoln National Corporation (NYSE:LNC).
Hedge fund activity in Lincoln National Corporation (NYSE:LNC)
At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 31% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LNC over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Lyrical Asset Management held the most valuable stake in Lincoln National Corporation (NYSE:LNC), which was worth $176.2 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $103.2 million worth of shares. Citadel Investment Group, East Side Capital (RR Partners), and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position East Side Capital (RR Partners) allocated the biggest weight to Lincoln National Corporation (NYSE:LNC), around 7.29% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, earmarking 3.47 percent of its 13F equity portfolio to LNC.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Chiron Investment Management, managed by Ryan Caldwell, assembled the most outsized position in Lincoln National Corporation (NYSE:LNC). Chiron Investment Management had $5.5 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also made a $4.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, Matthew Hulsizer’s PEAK6 Capital Management, and Greg Eisner’s Engineers Gate Manager.
Let’s go over hedge fund activity in other stocks similar to Lincoln National Corporation (NYSE:LNC). These stocks are Bill.com Holdings, Inc. (NYSE:BILL), Knight-Swift Transportation Holdings Inc. (NYSE:KNX), Bright Horizons Family Solutions Inc (NYSE:BFAM), Huntington Ingalls Industries Inc (NYSE:HII), Universal Display Corporation (NASDAQ:OLED), XPO Logistics Inc (NYSE:XPO), and News Corp (NASDAQ:NWS). This group of stocks’ market valuations are closest to LNC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BILL | 52 | 1196788 | 30 |
| KNX | 39 | 466487 | 7 |
| BFAM | 30 | 217350 | 3 |
| HII | 30 | 272167 | 9 |
| OLED | 25 | 216895 | 1 |
| XPO | 40 | 2294370 | 4 |
| NWS | 16 | 32230 | 3 |
| Average | 33.1 | 670898 | 8.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.1 hedge funds with bullish positions and the average amount invested in these stocks was $671 million. That figure was $494 million in LNC’s case. Bill.com Holdings, Inc. (NYSE:BILL) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 16 bullish hedge fund positions. Lincoln National Corporation (NYSE:LNC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LNC is 60.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately LNC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LNC were disappointed as the stock returned -1.3% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
