It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month 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' stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Ladenburg Thalmann Financial Services Inc. (NYSE:LTS).
Ladenburg Thalmann Financial Services Inc. (NYSE:LTS) was in 9 hedge funds' portfolios at the end of March. LTS investors should pay attention to an increase in activity from the world's largest hedge funds lately. There were 6 hedge funds in our database with LTS holdings at the end of the previous quarter. Our calculations also showed that lts isn't among the 30 most popular stocks among hedge funds.
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.
[caption id="attachment_746893" align="aligncenter" width="473"] Paul Marshall of Marshall Wace[/caption]
We're going to check out the latest hedge fund action surrounding Ladenburg Thalmann Financial Services Inc. (NYSE:LTS).
What does smart money think about Ladenburg Thalmann Financial Services Inc. (NYSE:LTS)?
At the end of the first quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in LTS a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Jim Simons's Renaissance Technologies has the number one position in Ladenburg Thalmann Financial Services Inc. (NYSE:LTS), worth close to $1.1 million, accounting for less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Millennium Management, led by Israel Englander, holding a $1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish comprise Paul Marshall and Ian Wace's Marshall Wace LLP, D. E. Shaw's D E Shaw and Ken Griffin's Citadel Investment Group.
Consequently, key hedge funds were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the largest position in Ladenburg Thalmann Financial Services Inc. (NYSE:LTS). Arrowstreet Capital had $0.1 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $0 million investment in the stock during the quarter. The following funds were also among the new LTS investors: John Overdeck and David Siegel's Two Sigma Advisors and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now take a look at hedge fund activity in other stocks similar to Ladenburg Thalmann Financial Services Inc. (NYSE:LTS). We will take a look at Sprague Resources LP (NYSE:SRLP), Accuray Incorporated (NASDAQ:ARAY), Veritiv Corp (NYSE:VRTV), and Limoneira Company (NASDAQ:LMNR). This group of stocks' market values are similar to LTS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SRLP,2,292,1 ARAY,15,89404,-2 VRTV,12,101897,2 LMNR,2,8529,-2 Average,7.75,50031,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $4 million in LTS's case. Accuray Incorporated (NASDAQ:ARAY) is the most popular stock in this table. On the other hand Sprague Resources LP (NYSE:SRLP) is the least popular one with only 2 bullish hedge fund positions. Ladenburg Thalmann Financial Services Inc. (NYSE:LTS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on LTS as the stock returned 25.6% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.