Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first quarter. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards L Brands Inc (NYSE:LB) to find out whether it was one of their high conviction long-term ideas.
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' 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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a peek at the new hedge fund action surrounding L Brands Inc (NYSE:LB).
What does the smart money think about L Brands Inc (NYSE:LB)?
At the end of the first quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards LB over the last 15 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.
The largest stake in L Brands Inc (NYSE:LB) was held by Makaira Partners, which reported holding $100.6 million worth of stock at the end of March. It was followed by SRS Investment Management with a $67.7 million position. Other investors bullish on the company included Samlyn Capital, Citadel Investment Group, and D E Shaw.
Due to the fact that L Brands Inc (NYSE:LB) has faced falling interest from the entirety of the hedge funds we track, logic holds that there exists a select few funds that elected to cut their entire stakes in the third quarter. At the top of the heap, Steve Cohen's Point72 Asset Management dumped the biggest investment of the 700 funds tracked by Insider Monkey, valued at close to $58.8 million in stock. Lee Ainslie's fund, Maverick Capital, also cut its stock, about $20.7 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 3 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as L Brands Inc (NYSE:LB) but similarly valued. These stocks are NICE Ltd. (NASDAQ:NICE), SL Green Realty Corp (NYSE:SLG), Amdocs Limited (NASDAQ:DOX), and Bio-Techne Corporation (NASDAQ:TECH). This group of stocks' market caps are similar to LB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NICE,17,236328,2 SLG,19,214863,-3 DOX,26,619930,2 TECH,18,380876,1 Average,20,362999,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $363 million. That figure was $710 million in LB's case. Amdocs Limited (NYSE:DOX) is the most popular stock in this table. On the other hand Nice Systems Ltd (NASDAQ:NICE) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks L Brands Inc (NYSE:LB) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately LB wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LB were disappointed as the stock returned -15.9% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.