It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in LG Display Co Ltd. (NYSE:LPL).
Is LG Display Co Ltd. (NYSE:LPL) a bargain? Money managers are turning less bullish. The number of long hedge fund positions dropped by 1 recently. Our calculations also showed that LPL isn't among the 30 most popular stocks among hedge funds. LPL was in 5 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 6 hedge funds in our database with LPL positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to go over the new hedge fund action surrounding LG Display Co Ltd. (NYSE:LPL).
How have hedgies been trading LG Display Co Ltd. (NYSE:LPL)?
Heading into the first quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in LPL a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, LMR Partners held the most valuable stake in LG Display Co Ltd. (NYSE:LPL), which was worth $16.3 million at the end of the third quarter. On the second spot was Highbridge Capital Management which amassed $1.9 million worth of shares. Moreover, Citadel Investment Group, Two Sigma Advisors, and PEAK6 Capital Management were also bullish on LG Display Co Ltd. (NYSE:LPL), allocating a large percentage of their portfolios to this stock.
Since LG Display Co Ltd. (NYSE:LPL) has witnessed declining sentiment from hedge fund managers, logic holds that there were a few funds who were dropping their positions entirely last quarter. At the top of the heap, Israel Englander's Millennium Management cut the biggest stake of all the hedgies tracked by Insider Monkey, comprising close to $1.1 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dropped its stock, about $0.7 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as LG Display Co Ltd. (NYSE:LPL) but similarly valued. These stocks are Enable Midstream Partners LP (NYSE:ENBL), World Wrestling Entertainment, Inc. (NYSE:WWE), AerCap Holdings N.V. (NYSE:AER), and Aspen Technology, Inc. (NASDAQ:AZPN). This group of stocks' market values are similar to LPL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENBL,4,2646,0 WWE,34,697668,10 AER,31,702579,9 AZPN,25,906269,-3 Average,23.5,577291,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $577 million. That figure was $19 million in LPL's case. World Wrestling Entertainment, Inc. (NYSE:WWE) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 4 bullish hedge fund positions. LG Display Co Ltd. (NYSE:LPL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately LPL wasn't in this group. Hedge funds that bet on LPL were disappointed as the stock returned 12% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.