At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Lazard Ltd (NYSE:LAZ).
Lazard Ltd (NYSE:LAZ) has seen an increase in hedge fund sentiment lately. LAZ was in 15 hedge funds' portfolios at the end of March. There were 14 hedge funds in our database with LAZ holdings at the end of the previous quarter. Our calculations also showed that LAZ 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.
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 S&P 500 ETFs by 58 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 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_731890" align="aligncenter" width="400"] John Rogers of Ariel Investments[/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. 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. Keeping this in mind let's analyze the fresh hedge fund action encompassing Lazard Ltd (NYSE:LAZ).
Hedge fund activity in Lazard Ltd (NYSE:LAZ)
At Q1's end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the fourth quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in LAZ a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Lazard Ltd (NYSE:LAZ) was held by Southeastern Asset Management, which reported holding $169.5 million worth of stock at the end of September. It was followed by Ariel Investments with a $124.5 million position. Other investors bullish on the company included Fisher Asset Management, Royce & Associates, and Hosking Partners. In terms of the portfolio weights assigned to each position Southeastern Asset Management allocated the biggest weight to Lazard Ltd (NYSE:LAZ), around 4.03% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, designating 2.18 percent of its 13F equity portfolio to LAZ.
As industrywide interest jumped, key money managers were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in Lazard Ltd (NYSE:LAZ). Arrowstreet Capital had $7.3 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $1.4 million position during the quarter. The other funds with brand new LAZ positions are Ali Motamed's Invenomic Capital Management, Renee Yao's Neo Ivy Capital, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.
Let's now review hedge fund activity in other stocks similar to Lazard Ltd (NYSE:LAZ). We will take a look at Valvoline Inc. (NYSE:VVV), Compania Cervecerias Unidas S.A. (NYSE:CCU), Hutchison China MediTech Limited (NASDAQ:HCM), and Bill.com Holdings, Inc. (NYSE:BILL). This group of stocks' market values match LAZ's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VVV,39,330953,12 CCU,11,23883,3 HCM,6,19384,-1 BILL,22,385025,-10 Average,19.5,189811,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $190 million. That figure was $392 million in LAZ's case. Valvoline Inc. (NYSE:VVV) is the most popular stock in this table. On the other hand Hutchison China MediTech Limited (NASDAQ:HCM) is the least popular one with only 6 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 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on LAZ, though not to the same extent, as the stock returned 22.2% during the second quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.