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 Leggett & Platt, Inc. (NYSE:LEG).
Leggett & Platt, Inc. (NYSE:LEG) shareholders have witnessed a decrease in support from the world's most elite money managers lately. LEG was in 9 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 10 hedge funds in our database with LEG positions at the end of the previous quarter. Our calculations also showed that leg isn't among the 30 most popular stocks among hedge funds.
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 view the key hedge fund action surrounding Leggett & Platt, Inc. (NYSE:LEG).
What have hedge funds been doing with Leggett & Platt, Inc. (NYSE:LEG)?
At the end of the fourth quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in LEG a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Balyasny Asset Management, managed by Dmitry Balyasny, holds the number one position in Leggett & Platt, Inc. (NYSE:LEG). Balyasny Asset Management has a $10.9 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Citadel Investment Group, led by Ken Griffin, holding a $7.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish contain Joel Greenblatt's Gotham Asset Management, and Brandon Haley's Holocene Advisors.
Because Leggett & Platt, Inc. (NYSE:LEG) has witnessed falling interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of money managers who were dropping their entire stakes last quarter. At the top of the heap, Alexander Mitchell's Scopus Asset Management dumped the largest stake of the 700 funds tracked by Insider Monkey, totaling about $8.8 million in stock. Chuck Royce's fund, Royce & Associates, also cut its stock, about $4.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Leggett & Platt, Inc. (NYSE:LEG). These stocks are MDU Resources Group Inc (NYSE:MDU), Sinopec Shanghai Petrochemical Company Limited. (NYSE:SHI), Aluminum Corp. of China Limited (NYSE:ACH), and Bruker Corporation (NASDAQ:BRKR). This group of stocks' market valuations are similar to LEG's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MDU,24,202819,5 SHI,6,13185,0 ACH,4,4511,2 BRKR,26,325328,2 Average,15,136461,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $34 million in LEG's case. Bruker Corporation (NASDAQ:BRKR) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 4 bullish hedge fund positions. Leggett & Platt, Inc. (NYSE:LEG) is not the least popular stock in this group but hedge fund interest is still below average. Clearly hedge funds don't like LEG that much. Our calculations showed that the top 15 most popular stocks among hedge funds returned 21.3% year-to-date through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. A few hedge funds were also right about betting on LEG, though not to the same extent, as the stock returned 20.9% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.