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Hedge Funds Are Souring On Lennox International Inc. (LII)

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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 866 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Lennox International Inc. (NYSE:LII).

Lennox International Inc. (NYSE:LII) investors should pay attention to a decrease in hedge fund sentiment in recent months. Lennox International Inc. (NYSE:LII) was in 25 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 34. Our calculations also showed that LII isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 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.

Andrew Sandler of Sandler Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 we're going to view the fresh hedge fund action encompassing Lennox International Inc. (NYSE:LII).

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

At the end of March, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in LII 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.

Among these funds, Impax Asset Management held the most valuable stake in Lennox International Inc. (NYSE:LII), which was worth $142 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $44.7 million worth of shares. Balyasny Asset Management, Arrowstreet Capital, and Citadel Investment Group 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 Bishop Rock Capital allocated the biggest weight to Lennox International Inc. (NYSE:LII), around 3.7% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, setting aside 0.91 percent of its 13F equity portfolio to LII.

Judging by the fact that Lennox International Inc. (NYSE:LII) has witnessed a decline in interest from hedge fund managers, logic holds that there were a few hedgies who sold off their full holdings heading into Q2. Interestingly, Alexander Mitchell's Scopus Asset Management said goodbye to the largest stake of the 750 funds monitored by Insider Monkey, worth an estimated $5.5 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund cut about $3.2 million worth. These transactions are important to note, as total hedge fund interest fell by 2 funds heading into Q2.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Lennox International Inc. (NYSE:LII) but similarly valued. We will take a look at Vail Resorts, Inc. (NYSE:MTN), China Eastern Airlines Corp. Ltd. (NYSE:CEA), FactSet Research Systems Inc. (NYSE:FDS), Brookfield Renewable Partners L.P. (NYSE:BEP), Vedanta Ltd (NYSE:VEDL), Equity Lifestyle Properties, Inc. (NYSE:ELS), and Black Knight, Inc. (NYSE:BKI). All of these stocks' market caps match LII's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTN,36,1091529,5 CEA,3,2009,2 FDS,30,355190,0 BEP,24,223248,4 VEDL,10,85028,0 ELS,29,620521,5 BKI,40,821783,-4 Average,24.6,457044,1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.6 hedge funds with bullish positions and the average amount invested in these stocks was $457 million. That figure was $396 million in LII's case. Black Knight, Inc. (NYSE:BKI) is the most popular stock in this table. On the other hand China Eastern Airlines Corp. Ltd. (NYSE:CEA) is the least popular one with only 3 bullish hedge fund positions. Lennox International Inc. (NYSE:LII) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LII is 54.8. 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 positive signal but 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 24% in 2021 through July 9th and beat the market again by 6.7 percentage points. Unfortunately LII wasn't nearly as popular as these 5 stocks and hedge funds that were betting on LII were disappointed as the stock returned 10.1% since the end of March (through 7/9) 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 many of these stocks already outperformed the market since 2019.

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