Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about LendingClub Corporation (NYSE:LC).
LendingClub Corporation (NYSE:LC) was in 10 hedge funds' portfolios at the end of the second quarter of 2019. LC shareholders have witnessed a decrease in activity from the world's largest hedge funds in recent months. There were 11 hedge funds in our database with LC positions at the end of the previous quarter. Our calculations also showed that LC 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 view the recent hedge fund action regarding LendingClub Corporation (NYSE:LC).
How are hedge funds trading LendingClub Corporation (NYSE:LC)?
At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in LC a year ago. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in LendingClub Corporation (NYSE:LC) was held by AQR Capital Management, which reported holding $1 million worth of stock at the end of March. It was followed by Tiger Global Management LLC with a $0.9 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Renaissance Technologies.
Because LendingClub Corporation (NYSE:LC) has experienced declining sentiment from the smart money, it's safe to say that there was a specific group of funds that slashed their full holdings in the second quarter. At the top of the heap, Tom Brown's Second Curve Capital dumped the largest position of the 750 funds followed by Insider Monkey, comprising an estimated $0.8 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund sold off about $0.5 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds in the second quarter.
Let's now take a look at hedge fund activity in other stocks similar to LendingClub Corporation (NYSE:LC). We will take a look at Canadian Solar Inc. (NASDAQ:CSIQ), Warrior Met Coal, Inc. (NYSE:HCC), First Commonwealth Financial Corporation (NYSE:FCF), and Noble Midstream Partners LP (NYSE:NBLX). This group of stocks' market caps are similar to LC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CSIQ,13,142467,2 HCC,31,391656,-4 FCF,12,38937,-3 NBLX,4,5889,0 Average,15,144737,-1.25 [/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 $145 million. That figure was $4 million in LC's case. Warrior Met Coal, Inc. (NYSE:HCC) is the most popular stock in this table. On the other hand Noble Midstream Partners LP (NYSE:NBLX) is the least popular one with only 4 bullish hedge fund positions. LendingClub Corporation (NYSE:LC) 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 LC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LC investors were disappointed as the stock returned -20.2% 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.