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Hedge Funds Are Cashing Out Of Lazard Ltd (LAZ)

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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Lazard Ltd (NYSE:LAZ).

Lazard Ltd (NYSE:LAZ) was in 19 hedge funds' portfolios at the end of March. The all time high for this statistic is 22. LAZ shareholders have witnessed a decrease in activity from the world's largest hedge funds lately. There were 20 hedge funds in our database with LAZ positions at the end of the fourth quarter. Our calculations also showed that LAZ isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Rogers’ Top 10 Stock Picks
John Rogers’ Top 10 Stock Picks

John Rogers of Ariel Investments

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Now let's go over the latest hedge fund action surrounding Lazard Ltd (NYSE:LAZ).

Do Hedge Funds Think LAZ Is A Good Stock To Buy Now?

At first quarter's end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards LAZ over the last 23 quarters. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

More specifically, Ariel Investments was the largest shareholder of Lazard Ltd (NYSE:LAZ), with a stake worth $302.3 million reported as of the end of March. Trailing Ariel Investments was Southeastern Asset Management, which amassed a stake valued at $206.6 million. Fisher Asset Management, Royce & Associates, 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 Southeastern Asset Management allocated the biggest weight to Lazard Ltd (NYSE:LAZ), around 4.42% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, setting aside 2.98 percent of its 13F equity portfolio to LAZ.

Due to the fact that Lazard Ltd (NYSE:LAZ) has experienced falling interest from the smart money, logic holds that there lies a certain "tier" of fund managers that slashed their full holdings heading into Q2. Interestingly, Carson Yost's Yost Capital Management said goodbye to the biggest position of all the hedgies monitored by Insider Monkey, comprising an estimated $8.5 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dumped its stock, about $7.8 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds heading into Q2.

Let's now take a look at hedge fund activity in other stocks similar to Lazard Ltd (NYSE:LAZ). We will take a look at Rackspace Technology, Inc. (NASDAQ:RXT), Spirit Realty Capital Inc (NYSE:SRC), American Eagle Outfitters Inc. (NYSE:AEO), AppFolio Inc (NASDAQ:APPF), Graphic Packaging Holding Company (NYSE:GPK), Hawaiian Electric Industries, Inc. (NYSE:HE), and SL Green Realty Corp (NYSE:SLG). This group of stocks' market valuations are closest to LAZ's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RXT,11,125806,-3 SRC,18,166994,1 AEO,43,948063,4 APPF,12,394366,-7 GPK,21,476673,-5 HE,12,196022,-6 SLG,21,162062,-1 Average,19.7,352855,-2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.7 hedge funds with bullish positions and the average amount invested in these stocks was $353 million. That figure was $771 million in LAZ's case. American Eagle Outfitters Inc. (NYSE:AEO) is the most popular stock in this table. On the other hand Rackspace Technology, Inc. (NASDAQ:RXT) is the least popular one with only 11 bullish hedge fund positions. Lazard Ltd (NYSE:LAZ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LAZ is 42.4. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately LAZ wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); LAZ investors were disappointed as the stock returned 1.4% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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