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Did Hedge Funds Make The Right Call On Life Storage, Inc. (LSI) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Life Storage, Inc. (NYSE:LSI) and determine whether hedge funds skillfully traded this stock.

Is Life Storage, Inc. (NYSE:LSI) going to take off soon? Investors who are in the know were betting on the stock. The number of long hedge fund positions inched up by 2 lately. Our calculations also showed that LSI 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.

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

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. Keeping this in mind we’re going to view the fresh hedge fund action regarding Life Storage, Inc. (NYSE:LSI).

How have hedgies been trading Life Storage, Inc. (NYSE:LSI)?

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in LSI a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Life Storage, Inc. (NYSE:LSI), which was worth $54.2 million at the end of the third quarter. On the second spot was Millennium Management which amassed $36 million worth of shares. Marshall Wace LLP, Winton Capital Management, and Echo Street Capital Management 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 Algert Coldiron Investors allocated the biggest weight to Life Storage, Inc. (NYSE:LSI), around 0.39% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.34 percent of its 13F equity portfolio to LSI.

As one would reasonably expect, key hedge funds have been driving this bullishness. Zimmer Partners, managed by Stuart J. Zimmer, initiated the largest position in Life Storage, Inc. (NYSE:LSI). Zimmer Partners had $1.9 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $1.1 million position during the quarter. The other funds with new positions in the stock are Mark Coe’s Intrinsic Edge Capital, Richard Driehaus’s Driehaus Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s also examine hedge fund activity in other stocks similar to Life Storage, Inc. (NYSE:LSI). These stocks are ONE Gas Inc (NYSE:OGS), LHC Group, Inc. (NASDAQ:LHCG), Zions Bancorporation, National Association (NASDAQ:ZION), and Oshkosh Corporation (NYSE:OSK). This group of stocks’ market caps resemble LSI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OGS 16 55599 0
LHCG 27 152070 1
ZION 33 112685 -10
OSK 22 214910 -6
Average 24.5 133816 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $156 million in LSI’s case. Zions Bancorporation, National Association (NASDAQ:ZION) is the most popular stock in this table. On the other hand ONE Gas Inc (NYSE:OGS) is the least popular one with only 16 bullish hedge fund positions. Life Storage, Inc. (NYSE:LSI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 and surpassed the market by 15.5 percentage points. Unfortunately LSI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LSI investors were disappointed as the stock returned 1.5% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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