Did Hedge Funds Make The Right Call On LHC Group, Inc. (LHCG) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. 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 we look at how hedge funds traded LHC Group, Inc. (NASDAQ:LHCG) and determine whether the smart money was really smart about this stock.

LHC Group, Inc. (NASDAQ:LHCG) was in 27 hedge funds’ portfolios at the end of March. LHCG shareholders have witnessed an increase in support from the world’s most elite money managers recently. There were 26 hedge funds in our database with LHCG positions at the end of the previous quarter. Our calculations also showed that LHCG 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.

Paul Glazer of Glazer Capital

Paul Glazer of Glazer Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a glance at the recent hedge fund action regarding LHC Group, Inc. (NASDAQ:LHCG).

What does smart money think about LHC Group, Inc. (NASDAQ:LHCG)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LHCG 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.

According to Insider Monkey’s hedge fund database, Omni Partners, managed by Steven Clark, holds the number one position in LHC Group, Inc. (NASDAQ:LHCG). Omni Partners has a $18.3 million position in the stock, comprising 1.6% of its 13F portfolio. Sitting at the No. 2 spot is Bayberry Capital Partners, led by Angela Aldrich, holding a $15 million position; 6.1% of its 13F portfolio is allocated to the company. Other peers with similar optimism encompass Paul Glazer’s Glazer Capital, Michael Platt and William Reeves’s BlueCrest Capital Mgmt. and Principal Global Investors’s Columbus Circle Investors. In terms of the portfolio weights assigned to each position Fort Baker Capital Management allocated the biggest weight to LHC Group, Inc. (NASDAQ:LHCG), around 6.8% of its 13F portfolio. Bayberry Capital Partners is also relatively very bullish on the stock, designating 6.12 percent of its 13F equity portfolio to LHCG.

Consequently, specific money managers were leading the bulls’ herd. Omni Partners, managed by Steven Clark, initiated the most outsized position in LHC Group, Inc. (NASDAQ:LHCG). Omni Partners had $18.3 million invested in the company at the end of the quarter. Angela Aldrich’s Bayberry Capital Partners also initiated a $15 million position during the quarter. The other funds with new positions in the stock are Steve Pigott’s Fort Baker Capital Management, Bhagwan Jay Rao’s Integral Health Asset Management, and Lawrence Hawkins’s Prosight Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as LHC Group, Inc. (NASDAQ:LHCG) but similarly valued. We will take a look at Zions Bancorporation, National Association (NASDAQ:ZION), Oshkosh Corporation (NYSE:OSK), Dunkin Brands Group Inc (NASDAQ:DNKN), and New York Community Bancorp, Inc. (NYSE:NYCB). This group of stocks’ market caps are similar to LHCG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ZION 33 112685 -10
OSK 22 214910 -6
DNKN 34 207067 3
NYCB 22 192830 -5
Average 27.75 181873 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $152 million in LHCG’s case. Dunkin Brands Group Inc (NASDAQ:DNKN) is the most popular stock in this table. On the other hand Oshkosh Corporation (NYSE:OSK) is the least popular one with only 22 bullish hedge fund positions. LHC Group, Inc. (NASDAQ:LHCG) is not the least popular stock in this group but hedge fund interest is still below 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 beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on LHCG, though not to the same extent, as the stock returned 24.3% during the second quarter and outperformed the market.

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