The 700+ hedge funds and money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund positions. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Lumber Liquidators Holdings Inc (NYSE:LL).
Hedge fund interest in Lumber Liquidators Holdings Inc (NYSE:LL) 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 MFS Intermediate Income Trust (NYSE:MIN), A10 Networks Inc (NYSE:ATEN), and CAI International Inc (NYSE:CAI) to gather more data points.
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 18 percentage points since May 2014 through December 3, 2018 (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.
Let's analyze the latest hedge fund action encompassing Lumber Liquidators Holdings Inc (NYSE:LL).
What have hedge funds been doing with Lumber Liquidators Holdings Inc (NYSE:LL)?
Heading into the fourth quarter of 2018, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, representing no change from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in LL at the beginning of this year. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Marshall Wace LLP, managed by Paul Marshall and Ian Wace, holds the biggest position in Lumber Liquidators Holdings Inc (NYSE:LL). Marshall Wace LLP has a $12.4 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Peter Muller of PDT Partners, with a $3.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism comprise Noam Gottesman's GLG Partners, Chuck Royce's Royce & Associates and Ken Griffin's Citadel Investment Group.
Judging by the fact that Lumber Liquidators Holdings Inc (NYSE:LL) has witnessed a decline in interest from the smart money, it's safe to say that there is a sect of fund managers that slashed their full holdings last quarter. It's worth mentioning that Ken Grossman and Glen Schneider's SG Capital Management dumped the largest investment of the "upper crust" of funds watched by Insider Monkey, comprising an estimated $22.9 million in call options, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dumped about $6.5 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Lumber Liquidators Holdings Inc (NYSE:LL) but similarly valued. These stocks are MFS Intermediate Income Trust (NYSE:MIN), A10 Networks Inc (NYSE:ATEN), CAI International Inc (NYSE:CAI), and CNB Financial Corporation (NASDAQ:CCNE). This group of stocks' market valuations match LL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MIN,2,2236,-1 ATEN,15,57328,2 CAI,15,104050,1 CCNE,5,32752,2 Average,9.25,49092,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $26 million in LL's case. A10 Networks Inc (NYSE:ATEN) is the most popular stock in this table. On the other hand MFS Intermediate Income Trust (NYSE:MIN) is the least popular one with only 2 bullish hedge fund positions. Lumber Liquidators Holdings Inc (NYSE:LL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard ATEN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.