Did Hedge Funds Drop The Ball On LPL Financial Holdings Inc (LPLA) ?

Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. Trends reversed 180 degrees during the first quarter amid Powell’s pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the first quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards LPL Financial Holdings Inc (NASDAQ:LPLA).

LPL Financial Holdings Inc (NASDAQ:LPLA) shareholders have witnessed a decrease in hedge fund interest in recent months. LPLA was in 33 hedge funds’ portfolios at the end of March. There were 34 hedge funds in our database with LPLA holdings at the end of the previous quarter. Our calculations also showed that lpla isn’t among the 30 most popular stocks among hedge funds.

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’ 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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

hedge fund research

Let’s check out the latest hedge fund action regarding LPL Financial Holdings Inc (NASDAQ:LPLA).

What does the smart money think about LPL Financial Holdings Inc (NASDAQ:LPLA)?

Heading into the second quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards LPLA over the last 15 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

No of Hedge Funds with LPLA Positions

Of the funds tracked by Insider Monkey, First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, holds the number one position in LPL Financial Holdings Inc (NASDAQ:LPLA). First Pacific Advisors LLC has a $203.7 million position in the stock, comprising 1.8% of its 13F portfolio. Coming in second is Robert Pohly of Samlyn Capital, with a $158.1 million position; 3.7% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism comprise John Smith Clark’s Southpoint Capital Advisors, James Parsons’s Junto Capital Management and George Soros’s Soros Fund Management.

Due to the fact that LPL Financial Holdings Inc (NASDAQ:LPLA) has experienced falling interest from hedge fund managers, it’s safe to say that there is a sect of fund managers that decided to sell off their positions entirely in the third quarter. Intriguingly, Steve Cohen’s Point72 Asset Management said goodbye to the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling about $26.6 million in stock. Mick Hellman’s fund, HMI Capital, also dropped its stock, about $20.8 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to LPL Financial Holdings Inc (NASDAQ:LPLA). We will take a look at CAE, Inc. (NYSE:CAE), GCI Liberty, Inc. (NASDAQ:GLIBA), Hexcel Corporation (NYSE:HXL), and XPO Logistics Inc (NYSE:XPO). This group of stocks’ market valuations are closest to LPLA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CAE 10 117527 1
GLIBA 36 1903190 -1
HXL 25 176354 2
XPO 26 2005525 -18
Average 24.25 1050649 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $1051 million. That figure was $807 million in LPLA’s case. GCI Liberty, Inc. (NASDAQ:GLIBA) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 10 bullish hedge fund positions. LPL Financial Holdings Inc (NASDAQ:LPLA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on LPLA as the stock returned 19% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.