Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Lazard Ltd (NYSE:LAZ) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds' portfolios at the end of March. At the end of this article we will also compare LAZ to other stocks including 2U Inc (NASDAQ:TWOU), The Wendy's Company (NASDAQ:WEN), and Jabil Inc. (NYSE:JBL) to get a better sense of its popularity.
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.
We're going to take a look at the key hedge fund action encompassing Lazard Ltd (NYSE:LAZ).
What does smart money think about Lazard Ltd (NYSE:LAZ)?
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LAZ over the last 15 quarters. So, let's review 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, Mason Hawkins's Southeastern Asset Management has the largest position in Lazard Ltd (NYSE:LAZ), worth close to $208.4 million, corresponding to 3% of its total 13F portfolio. Sitting at the No. 2 spot is Ariel Investments, managed by John W. Rogers, which holds a $195.8 million position; the fund has 2.4% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism consist of Ken Fisher's Fisher Asset Management, Chuck Royce's Royce & Associates and John Overdeck and David Siegel's Two Sigma Advisors.
Due to the fact that Lazard Ltd (NYSE:LAZ) has experienced falling interest from the aggregate hedge fund industry, we can see that there were a few funds that elected to cut their full holdings heading into Q3. Intriguingly, Michael Kharitonov and Jon David McAuliffe's Voleon Capital cut the largest position of the 700 funds watched by Insider Monkey, worth an estimated $1.1 million in stock, and Jeffrey Talpins's Element Capital Management was right behind this move, as the fund dumped about $0.3 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to Lazard Ltd (NYSE:LAZ). These stocks are 2U Inc (NASDAQ:TWOU), The Wendy's Company (NASDAQ:WEN), Jabil Inc. (NYSE:JBL), and Emcor Group Inc (NYSE:EME). This group of stocks' market caps are closest to LAZ's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TWOU,19,155362,8 WEN,27,914054,1 JBL,20,275454,0 EME,26,248543,8 Average,23,398353,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $398 million. That figure was $581 million in LAZ's case. The Wendy's Company (NASDAQ:WEN) is the most popular stock in this table. On the other hand 2U Inc (NASDAQ:TWOU) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Lazard Ltd (NYSE:LAZ) is even less popular than TWOU. Hedge funds dodged a bullet by taking a bearish stance towards LAZ. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately LAZ wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); LAZ investors were disappointed as the stock returned -4.2% during the same time frame 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 so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.