We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Lakeland Financial Corporation (NASDAQ:LKFN).
Hedge fund interest in Lakeland Financial Corporation (NASDAQ:LKFN) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Sculptor Capital Management, Inc. (NYSE:OZM), Armada Hoffler Properties Inc (NYSE:AHH), and New York Mortgage Trust, Inc. (NASDAQ:NYMT) to gather more data points. Our calculations also showed that LKFN isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the recent hedge fund action surrounding Lakeland Financial Corporation (NASDAQ:LKFN).
How are hedge funds trading Lakeland Financial Corporation (NASDAQ:LKFN)?
Heading into the third quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LKFN over the last 16 quarters. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Lakeland Financial Corporation (NASDAQ:LKFN), with a stake worth $11.8 million reported as of the end of March. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $2.1 million. PDT Partners, Millennium Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace LLP. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Driehaus Capital).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Lakeland Financial Corporation (NASDAQ:LKFN) but similarly valued. We will take a look at Sculptor Capital Management, Inc.(NYSE:OZM), Armada Hoffler Properties Inc (NYSE:AHH), New York Mortgage Trust, Inc. (NASDAQ:NYMT), and SRC Energy Inc. (NYSE:SRCI). This group of stocks' market values are similar to LKFN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OZM,10,79555,2 AHH,9,66436,-2 NYMT,10,20566,4 SRCI,19,304872,5 Average,12,117857,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $20 million in LKFN's case. SRC Energy Inc. (NYSE:SRCI) is the most popular stock in this table. On the other hand Armada Hoffler Properties Inc (NYSE:AHH) is the least popular one with only 9 bullish hedge fund positions. Lakeland Financial Corporation (NASDAQ:LKFN) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately LKFN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LKFN investors were disappointed as the stock returned -5.4% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.