Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the fourth quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to LegacyTexas Financial Group Inc (NASDAQ:LTXB) changed recently.
LegacyTexas Financial Group Inc (NASDAQ:LTXB) was in 12 hedge funds' portfolios at the end of the fourth quarter of 2018. LTXB has experienced a decrease in support from the world's most elite money managers of late. There were 14 hedge funds in our database with LTXB holdings at the end of the previous quarter. Our calculations also showed that LTXB 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 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's review the fresh hedge fund action surrounding LegacyTexas Financial Group Inc (NASDAQ:LTXB).
Hedge fund activity in LegacyTexas Financial Group Inc (NASDAQ:LTXB)
At Q4's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LTXB over the last 14 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in LegacyTexas Financial Group Inc (NASDAQ:LTXB) was held by Millennium Management, which reported holding $31.2 million worth of stock at the end of December. It was followed by Impax Asset Management with a $10.4 million position. Other investors bullish on the company included Elizabeth Park Capital Management, Renaissance Technologies, and Balyasny Asset Management.
Since LegacyTexas Financial Group Inc (NASDAQ:LTXB) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedgies who were dropping their full holdings by the end of the third quarter. Interestingly, Malcolm Fairbairn's Ascend Capital dropped the largest investment of the 700 funds watched by Insider Monkey, totaling about $3.6 million in stock, and George Soros's Soros Fund Management was right behind this move, as the fund dropped about $1.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as LegacyTexas Financial Group Inc (NASDAQ:LTXB) but similarly valued. We will take a look at TopBuild Corp (NYSE:BLD), Alexander's, Inc. (NYSE:ALX), Tri Pointe Group Inc (NYSE:TPH), and HNI Corp (NYSE:HNI). This group of stocks' market values are similar to LTXB's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLD,14,91036,-4 ALX,6,54780,-2 TPH,15,128152,-2 HNI,18,29238,8 Average,13.25,75802,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $65 million in LTXB's case. HNI Corp (NYSE:HNI) is the most popular stock in this table. On the other hand Alexander's, Inc. (NYSE:ALX) is the least popular one with only 6 bullish hedge fund positions. LegacyTexas Financial Group Inc (NASDAQ:LTXB) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on LTXB as the stock returned 25.6% and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.