We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Lumentum Holdings Inc (NASDAQ:LITE) based on that data.
Lumentum Holdings Inc (NASDAQ:LITE) has seen a decrease in activity from the world's largest hedge funds in recent months. LITE was in 34 hedge funds' portfolios at the end of the first quarter of 2020. There were 37 hedge funds in our database with LITE holdings at the end of the previous quarter. Our calculations also showed that LITE isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 51 percentage points since March 2017 (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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_256989" align="aligncenter" width="400"] Dmitry Balyasny of Balyasny Asset Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a peek at the fresh hedge fund action encompassing Lumentum Holdings Inc (NASDAQ:LITE).
What does smart money think about Lumentum Holdings Inc (NASDAQ:LITE)?
At Q1's end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in LITE over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Lumentum Holdings Inc (NASDAQ:LITE), with a stake worth $163.4 million reported as of the end of September. Trailing Renaissance Technologies was Fisher Asset Management, which amassed a stake valued at $75.2 million. Polar Capital, Matrix Capital Management, and Holocene Advisors 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 AlphaOne Capital Partners allocated the biggest weight to Lumentum Holdings Inc (NASDAQ:LITE), around 7.98% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, designating 4.65 percent of its 13F equity portfolio to LITE.
Judging by the fact that Lumentum Holdings Inc (NASDAQ:LITE) has faced bearish sentiment from the smart money, it's safe to say that there exists a select few funds who were dropping their entire stakes heading into Q4. Interestingly, John Hurley's Cavalry Asset Management cut the largest stake of the 750 funds followed by Insider Monkey, worth about $24.9 million in stock. Michael Rockefeller and KarláKroeker's fund, Woodline Partners, also dropped its stock, about $22 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 3 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to Lumentum Holdings Inc (NASDAQ:LITE). We will take a look at Dolby Laboratories, Inc. (NYSE:DLB), Bausch Health Companies (NYSE:BHC), Mohawk Industries, Inc. (NYSE:MHK), and Ally Financial Inc (NYSE:ALLY). All of these stocks' market caps are closest to LITE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DLB,29,374056,-2 BHC,35,1566790,4 MHK,36,585591,-4 ALLY,45,931554,-9 Average,36.25,864498,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $864 million. That figure was $488 million in LITE's case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Dolby Laboratories, Inc. (NYSE:DLB) is the least popular one with only 29 bullish hedge fund positions. Lumentum Holdings Inc (NASDAQ:LITE) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately LITE wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LITE investors were disappointed as the stock returned -0.5% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.