The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Lincoln National Corporation (NYSE:LNC) and find out how it is affected by hedge funds' moves.
Lincoln National Corporation (NYSE:LNC) was in 34 hedge funds' portfolios at the end of September. LNC investors should be aware of a decrease in support from the world's most elite money managers of late. There were 35 hedge funds in our database with LNC holdings at the end of the previous quarter. Our calculations also showed that LNC 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.
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 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.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a glance at the fresh hedge fund action regarding Lincoln National Corporation (NYSE:LNC).
What have hedge funds been doing with Lincoln National Corporation (NYSE:LNC)?
Heading into the fourth quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LNC over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Lyrical Asset Management held the most valuable stake in Lincoln National Corporation (NYSE:LNC), which was worth $289.3 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $145.6 million worth of shares. AQR Capital Management, Citadel Investment Group, and GLG Partners 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 RR Partners allocated the biggest weight to Lincoln National Corporation (NYSE:LNC), around 9.03% of its portfolio. Capital Returns Management is also relatively very bullish on the stock, designating 5.28 percent of its 13F equity portfolio to LNC.
Judging by the fact that Lincoln National Corporation (NYSE:LNC) has witnessed falling interest from hedge fund managers, it's easy to see that there lies a certain "tier" of hedge funds that elected to cut their positions entirely heading into Q4. It's worth mentioning that John Overdeck and David Siegel's Two Sigma Advisors dumped the largest position of the "upper crust" of funds tracked by Insider Monkey, valued at about $14.5 million in stock. Matthew Tewksbury's fund, Stevens Capital Management, also said goodbye to its stock, about $10.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q4.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Lincoln National Corporation (NYSE:LNC) but similarly valued. These stocks are Masco Corporation (NYSE:MAS), American Airlines Group Inc (NASDAQ:AAL), Lyft, Inc. (NASDAQ:LYFT), and DENTSPLY SIRONA Inc. (NASDAQ:XRAY). This group of stocks' market caps are closest to LNC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MAS,46,1007912,1 AAL,38,1781432,4 LYFT,33,880680,-4 XRAY,28,1628924,-1 Average,36.25,1324737,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $1325 million. That figure was $1142 million in LNC's case. Masco Corporation (NYSE:MAS) is the most popular stock in this table. On the other hand DENTSPLY SIRONA Inc. (NASDAQ:XRAY) is the least popular one with only 28 bullish hedge fund positions. Lincoln National Corporation (NYSE:LNC) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LNC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LNC investors were disappointed as the stock returned -1.4% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.