Were Hedge Funds Right About Leggett & Platt, Inc. (LEG)?
The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtLeggett & Platt, Inc. (NYSE:LEG) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.
Is Leggett & Platt, Inc. (NYSE:LEG) a superb investment right now? Investors who are in the know were getting less optimistic. The number of long hedge fund positions fell by 2 lately. Our calculations also showed that LEG isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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 stocks that are in our short portfolio.
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Matthew Hulsizer of PEAK6 Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we're going to take a gander at the latest hedge fund action encompassing Leggett & Platt, Inc. (NYSE:LEG).
How have hedgies been trading Leggett & Platt, Inc. (NYSE:LEG)?
At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LEG over the last 18 quarters. 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, Renaissance Technologies has the biggest position in Leggett & Platt, Inc. (NYSE:LEG), worth close to $14.4 million, amounting to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Joel Greenblatt of Gotham Asset Management, with a $9 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions comprise Israel Englander's Millennium Management, D. E. Shaw's D E Shaw and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Leggett & Platt, Inc. (NYSE:LEG), around 0.53% of its 13F portfolio. Gotham Asset Management is also relatively very bullish on the stock, earmarking 0.25 percent of its 13F equity portfolio to LEG.
Because Leggett & Platt, Inc. (NYSE:LEG) has faced a decline in interest from the smart money, we can see that there was a specific group of money managers who sold off their positions entirely by the end of the first quarter. It's worth mentioning that Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners dumped the largest position of all the hedgies watched by Insider Monkey, totaling about $1.4 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund sold off about $1.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds by the end of the first quarter.
Let's go over hedge fund activity in other stocks similar to Leggett & Platt, Inc. (NYSE:LEG). We will take a look at Adaptive Biotechnologies Corporation (NASDAQ:ADPT), Alaska Air Group, Inc. (NYSE:ALK), Terreno Realty Corporation (NYSE:TRNO), and BJ's Wholesale Club Holdings, Inc. (NYSE:BJ). This group of stocks' market caps are closest to LEG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADPT,18,1592264,-4 ALK,27,263441,-12 TRNO,10,26182,-4 BJ,26,156840,4 Average,20.25,509682,-4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $510 million. That figure was $71 million in LEG's case. Alaska Air Group, Inc. (NYSE:ALK) is the most popular stock in this table. On the other hand Terreno Realty Corporation (NYSE:TRNO) is the least popular one with only 10 bullish hedge fund positions. Leggett & Platt, Inc. (NYSE:LEG) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on LEG as the stock returned 33.4% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
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