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Did Hedge Funds Make The Right Call On Lincoln National Corporation (LNC) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Lincoln National Corporation (NYSE:LNC) and determine whether hedge funds had an edge regarding this stock.

Lincoln National Corporation (NYSE:LNC) was in 26 hedge funds’ portfolios at the end of March. LNC investors should be aware of a decrease in enthusiasm from smart money recently. There were 40 hedge funds in our database with LNC positions at the end of the previous quarter. Our calculations also showed that LNC 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Lee Ainslie MAVERICK CAPITAL

Lee Ainslie of Maverick 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. Now we’re going to take a gander at the key hedge fund action encompassing Lincoln National Corporation (NYSE:LNC).

Hedge fund activity in Lincoln National Corporation (NYSE:LNC)

Heading into the second quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -35% from the previous quarter. By comparison, 40 hedge funds held shares or bullish call options in LNC a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Southport Management, managed by Jonathan Dawson, holds the biggest position in Lincoln National Corporation (NYSE:LNC). Southport Management has a $263.2 million position in the stock, comprising 2.9% of its 13F portfolio. Sitting at the No. 2 spot is Andrew Wellington and Jeff Keswin of Lyrical Asset Management, with a $121.9 million position; the fund has 3% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Steven Richman’s East Side Capital (RR Partners) and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position East Side Capital (RR Partners) allocated the biggest weight to Lincoln National Corporation (NYSE:LNC), around 6.04% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, dishing out 3 percent of its 13F equity portfolio to LNC.

Due to the fact that Lincoln National Corporation (NYSE:LNC) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their entire stakes by the end of the first quarter. At the top of the heap, John Murphy’s Levin Easterly Partners sold off the biggest investment of the “upper crust” of funds followed by Insider Monkey, valued at about $75.2 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $62.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 14 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Lincoln National Corporation (NYSE:LNC). We will take a look at Lamar Advertising Company (REIT) (NASDAQ:LAMR), ON Semiconductor Corporation (NASDAQ:ON), Aegon N.V. (NYSE:AEG), and United Microelectronics Corp (NYSE:UMC). All of these stocks’ market caps are closest to LNC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LAMR 34 217189 6
ON 29 153091 -3
AEG 4 16681 -2
UMC 15 98878 1
Average 20.5 121460 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $602 million in LNC’s case. Lamar Advertising Company (REIT) (NASDAQ:LAMR) is the most popular stock in this table. On the other hand Aegon N.V. (NYSE:AEG) is the least popular one with only 4 bullish hedge fund positions. Lincoln National Corporation (NYSE:LNC) 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 LNC as the stock returned 41.5% 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.