You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
LPL Financial Holdings Inc (NASDAQ:LPLA) has seen a decrease in enthusiasm from smart money of late. LPLA was in 31 hedge funds' portfolios at the end of June. There were 33 hedge funds in our database with LPLA holdings at the end of the previous quarter. Our calculations also showed that LPLA isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to analyze the key hedge fund action regarding LPL Financial Holdings Inc (NASDAQ:LPLA).
What does smart money think about LPL Financial Holdings Inc (NASDAQ:LPLA)?
At Q2's end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LPLA over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, First Pacific Advisors LLC held the most valuable stake in LPL Financial Holdings Inc (NASDAQ:LPLA), which was worth $236.8 million at the end of the second quarter. On the second spot was Samlyn Capital which amassed $182 million worth of shares. Moreover, Southpoint Capital Advisors, Arrowstreet Capital, and Junto Capital Management were also bullish on LPL Financial Holdings Inc (NASDAQ:LPLA), allocating a large percentage of their portfolios to this stock.
Due to the fact that LPL Financial Holdings Inc (NASDAQ:LPLA) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of hedge funds that slashed their entire stakes by the end of the second quarter. Interestingly, Robert Pohly's Samlyn Capital cut the largest investment of the 750 funds watched by Insider Monkey, worth close to $24.1 million in stock. Leonard A. Potter's fund, Wildcat Capital Management, also cut its stock, about $7.1 million worth. These moves are interesting, as total hedge fund interest dropped by 2 funds by the end of the second quarter.
Let's go over hedge fund activity in other stocks similar to LPL Financial Holdings Inc (NASDAQ:LPLA). These stocks are Perrigo Company (NASDAQ:PRGO), CyrusOne Inc (NASDAQ:CONE), Signature Bank (NASDAQ:SBNY), and Steel Dynamics, Inc. (NASDAQ:STLD). This group of stocks' market caps are closest to LPLA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRGO,21,720516,3 CONE,18,173157,1 SBNY,29,513611,-7 STLD,31,591407,4 Average,24.75,499673,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $500 million. That figure was $1017 million in LPLA's case. Steel Dynamics, Inc. (NASDAQ:STLD) is the most popular stock in this table. On the other hand CyrusOne Inc (NASDAQ:CONE) is the least popular one with only 18 bullish hedge fund positions. LPL Financial Holdings Inc (NASDAQ:LPLA) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately LPLA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LPLA were disappointed as the stock returned 0.7% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.