"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards LivePerson, Inc. (NASDAQ:LPSN).
Is LivePerson, Inc. (NASDAQ:LPSN) a buy, sell, or hold? Investors who are in the know are getting less optimistic. The number of bullish hedge fund bets fell by 1 in recent months. Our calculations also showed that LPSN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
[caption id="attachment_769366" align="aligncenter" width="1613"] Robert Moses of RGM Capital[/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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the latest hedge fund action encompassing LivePerson, Inc. (NASDAQ:LPSN).
How have hedgies been trading LivePerson, Inc. (NASDAQ:LPSN)?
At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in LPSN over the last 17 quarters. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, RGM Capital was the largest shareholder of LivePerson, Inc. (NASDAQ:LPSN), with a stake worth $67.3 million reported as of the end of September. Trailing RGM Capital was Portolan Capital Management, which amassed a stake valued at $40.3 million. Polar Capital, Intrinsic Edge Capital, and Two Sigma Advisors 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 Portolan Capital Management allocated the biggest weight to LivePerson, Inc. (NASDAQ:LPSN), around 4.55% of its 13F portfolio. RGM Capital is also relatively very bullish on the stock, designating 4.48 percent of its 13F equity portfolio to LPSN.
Because LivePerson, Inc. (NASDAQ:LPSN) has faced falling interest from the aggregate hedge fund industry, it's easy to see that there is a sect of funds that slashed their full holdings heading into Q4. Intriguingly, Mark N. Diker's Diker Management said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, comprising an estimated $5.9 million in stock, and Renaissance Technologies was right behind this move, as the fund said goodbye to about $5.1 million worth. These transactions are important to note, as total hedge fund interest was cut by 1 funds heading into Q4.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as LivePerson, Inc. (NASDAQ:LPSN) but similarly valued. These stocks are Crescent Point Energy Corp (NYSE:CPG), Anixter International Inc. (NYSE:AXE), Domtar Corporation (NYSE:UFS), and EVO Payments, Inc. (NASDAQ:EVOP). All of these stocks' market caps are closest to LPSN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CPG,10,64227,-2 AXE,18,293397,-2 UFS,21,113431,3 EVOP,15,45312,2 Average,16,129092,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $190 million in LPSN's case. Domtar Corporation (NYSE:UFS) is the most popular stock in this table. On the other hand Crescent Point Energy Corp (NYSE:CPG) is the least popular one with only 10 bullish hedge fund positions. LivePerson, Inc. (NASDAQ:LPSN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on LPSN as the stock returned 11.2% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.