Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Ladder Capital Corp (NYSE:LADR).
Ladder Capital Corp (NYSE:LADR) has experienced a decrease in enthusiasm from smart money lately. LADR was in 12 hedge funds' portfolios at the end of the third quarter of 2019. There were 13 hedge funds in our database with LADR holdings at the end of the previous quarter. Our calculations also showed that LADR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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' 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_189632" align="aligncenter" width="450"] David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to analyze the key hedge fund action surrounding Ladder Capital Corp (NYSE:LADR).
What does smart money think about Ladder Capital Corp (NYSE:LADR)?
At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the second quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in LADR a year ago. 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, Millennium Management held the most valuable stake in Ladder Capital Corp (NYSE:LADR), which was worth $19.3 million at the end of the third quarter. On the second spot was Clough Capital Partners which amassed $9.2 million worth of shares. Marathon Asset Management, Winton Capital Management, and Renaissance Technologies 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 Marathon Asset Management allocated the biggest weight to Ladder Capital Corp (NYSE:LADR), around 2.27% of its 13F portfolio. Clough Capital Partners is also relatively very bullish on the stock, setting aside 0.76 percent of its 13F equity portfolio to LADR.
Due to the fact that Ladder Capital Corp (NYSE:LADR) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of fund managers that decided to sell off their entire stakes by the end of the third quarter. Interestingly, Roger Ibbotson's Zebra Capital Management dropped the biggest position of the 750 funds monitored by Insider Monkey, comprising close to $0.2 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund cut about $0 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks similar to Ladder Capital Corp (NYSE:LADR). We will take a look at Core Laboratories N.V. (NYSE:CLB), National Beverage Corp. (NASDAQ:FIZZ), Everbridge, Inc. (NASDAQ:EVBG), and SeaWorld Entertainment Inc (NYSE:SEAS). This group of stocks' market values are similar to LADR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CLB,14,150203,-7 FIZZ,15,286562,-7 EVBG,27,409477,-1 SEAS,32,998661,0 Average,22,461226,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $461 million. That figure was $46 million in LADR's case. SeaWorld Entertainment Inc (NYSE:SEAS) is the most popular stock in this table. On the other hand Core Laboratories N.V. (NYSE:CLB) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Ladder Capital Corp (NYSE:LADR) is even less popular than CLB. Hedge funds dodged a bullet by taking a bearish stance towards LADR. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LADR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); LADR investors were disappointed as the stock returned 0.1% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.