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 Lyft, Inc. (NASDAQ:LYFT).
Lyft, Inc. (NASDAQ:LYFT) has experienced a decrease in hedge fund interest recently. Our calculations also showed that LYFT isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to 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 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. Let's review the key hedge fund action regarding Lyft, Inc. (NASDAQ:LYFT).
How are hedge funds trading Lyft, Inc. (NASDAQ:LYFT)?
At Q2's end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -48% from the first quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in LYFT a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Falcon Edge Capital was the largest shareholder of Lyft, Inc. (NASDAQ:LYFT), with a stake worth $508.6 million reported as of the end of March. Trailing Falcon Edge Capital was Glade Brook Capital Partners, which amassed a stake valued at $272.6 million. Citadel Investment Group, Paulson & Co, and Senator Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Lyft, Inc. (NASDAQ:LYFT) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few money managers that decided to sell off their entire stakes by the end of the second quarter. Interestingly, Ricky Sandler's Eminence Capital said goodbye to the largest stake of the "upper crust" of funds tracked by Insider Monkey, comprising close to $65 million in stock, and Panayotis Takis Sparaggis's Alkeon Capital Management was right behind this move, as the fund dropped about $47 million worth. These moves are interesting, as total hedge fund interest was cut by 34 funds by the end of the second quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Lyft, Inc. (NASDAQ:LYFT) but similarly valued. We will take a look at International Paper Company (NYSE:IP), Twilio Inc. (NYSE:TWLO), Laboratory Corp. of America Holdings (NYSE:LH), and ANSYS, Inc. (NASDAQ:ANSS). This group of stocks' market values match LYFT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IP,31,256587,2 TWLO,63,2265236,4 LH,38,1528665,-1 ANSS,25,789741,-3 Average,39.25,1210057,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.25 hedge funds with bullish positions and the average amount invested in these stocks was $1210 million. That figure was $1789 million in LYFT's case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand ANSYS, Inc. (NASDAQ:ANSS) is the least popular one with only 25 bullish hedge fund positions. Lyft, Inc. (NASDAQ:LYFT) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 LYFT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LYFT investors were disappointed as the stock returned -37.8% 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.