Did Hedge Funds Drop The Ball On Lumentum Holdings Inc (LITE) ?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Lumentum Holdings Inc (NASDAQ:LITE).

Lumentum Holdings Inc (NASDAQ:LITE) has seen a decrease in enthusiasm from smart money in recent months. Our calculations also showed that LITE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

According to most market participants, hedge funds are perceived as slow, outdated financial tools of yesteryear. While there are more than 8000 funds in operation at the moment, Our experts look at the masters of this group, approximately 750 funds. These hedge fund managers command bulk of the smart money’s total asset base, and by monitoring their finest stock picks, Insider Monkey has brought to light various investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Clint Carlson of Carlson Capital

Clint Carlson of Carlson Capital

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 look at the latest hedge fund action encompassing Lumentum Holdings Inc (NASDAQ:LITE).

What does smart money think about Lumentum Holdings Inc (NASDAQ:LITE)?

Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LITE over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).


More specifically, Point72 Asset Management was the largest shareholder of Lumentum Holdings Inc (NASDAQ:LITE), with a stake worth $48.7 million reported as of the end of September. Trailing Point72 Asset Management was Citadel Investment Group, which amassed a stake valued at $44 million. Cavalry Asset Management, Fisher Asset Management, and Carlson Capital 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 Bronson Point Partners allocated the biggest weight to Lumentum Holdings Inc (NASDAQ:LITE), around 6.39% of its portfolio. Cavalry Asset Management is also relatively very bullish on the stock, dishing out 6.33 percent of its 13F equity portfolio to LITE.

Judging by the fact that Lumentum Holdings Inc (NASDAQ:LITE) has witnessed a decline in interest from the smart money, it’s easy to see that there exists a select few hedgies who sold off their full holdings heading into Q4. It’s worth mentioning that Anand Parekh’s Alyeska Investment Group dropped the biggest position of the 750 funds watched by Insider Monkey, worth close to $30.5 million in stock. Lee Ainslie’s fund, Maverick Capital, also said goodbye to its stock, about $15 million worth. These moves are interesting, as total hedge fund interest fell by 1 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Lumentum Holdings Inc (NASDAQ:LITE). We will take a look at Pivotal Software, Inc. (NYSE:PVTL), frontdoor, inc. (NASDAQ:FTDR), Compania Cervecerias Unidas S.A. (NYSE:CCU), and Cabot Microelectronics Corporation (NASDAQ:CCMP). This group of stocks’ market valuations match LITE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PVTL 22 275424 2
FTDR 38 735584 -2
CCU 9 32949 -1
CCMP 15 348635 2
Average 21 348148 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $348 million. That figure was $219 million in LITE’s case. frontdoor, inc. (NASDAQ:FTDR) is the most popular stock in this table. On the other hand Compania Cervecerias Unidas S.A. (NYSE:CCU) is the least popular one with only 9 bullish hedge fund positions. Lumentum Holdings Inc (NASDAQ:LITE) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on LITE as the stock returned 37.5% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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