We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Lancaster Colony Corporation (NASDAQ:LANC) and determine whether hedge funds skillfully traded this stock.
Lancaster Colony Corporation (NASDAQ:LANC) was in 19 hedge funds' portfolios at the end of June. The all time high for this statistics is 26. LANC has seen a decrease in hedge fund interest recently. There were 23 hedge funds in our database with LANC positions at the end of the first quarter. Our calculations also showed that LANC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Siegel of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let's view the recent hedge fund action regarding Lancaster Colony Corporation (NASDAQ:LANC).
How have hedgies been trading Lancaster Colony Corporation (NASDAQ:LANC)?
At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the first quarter of 2020. By comparison, 18 hedge funds held shares or bullish call options in LANC a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Lancaster Colony Corporation (NASDAQ:LANC) was held by Renaissance Technologies, which reported holding $102.3 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $47 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Candlestick Capital Management. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Lancaster Colony Corporation (NASDAQ:LANC), around 0.8% of its 13F portfolio. Candlestick Capital Management is also relatively very bullish on the stock, designating 0.28 percent of its 13F equity portfolio to LANC.
Judging by the fact that Lancaster Colony Corporation (NASDAQ:LANC) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few hedgies who sold off their positions entirely heading into Q3. At the top of the heap, Mark Coe's Intrinsic Edge Capital dumped the biggest position of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $5.4 million in stock, and Chuck Royce's Royce & Associates was right behind this move, as the fund cut about $3.8 million worth. These transactions are important to note, as total hedge fund interest was cut by 4 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks similar to Lancaster Colony Corporation (NASDAQ:LANC). We will take a look at Inovio Pharmaceuticals Inc (NASDAQ:INO), FTI Consulting, Inc. (NYSE:FCN), Tata Motors Limited (NYSE:TTM), Blueprint Medicines Corporation (NASDAQ:BPMC), Under Armour Inc (NYSE:UA), Starwood Property Trust, Inc. (NYSE:STWD), and Norwegian Cruise Line Holdings Ltd (NYSE:NCLH). This group of stocks' market valuations are closest to LANC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INO,14,117679,6 FCN,32,377924,13 TTM,9,36380,-1 BPMC,38,1004517,2 UA,40,558888,3 STWD,22,168439,-1 NCLH,28,170565,8 Average,26.1,347770,4.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.1 hedge funds with bullish positions and the average amount invested in these stocks was $348 million. That figure was $246 million in LANC's case. Under Armour Inc (NYSE:UA) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) is the least popular one with only 9 bullish hedge fund positions. Lancaster Colony Corporation (NASDAQ:LANC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LANC is 39.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on LANC as the stock returned 15.8% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.