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Did Hedge Funds Make The Right Call On LPL Financial Holdings Inc (LPLA) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards LPL Financial Holdings Inc (NASDAQ:LPLA) at the end of the first quarter and determine whether the smart money was really smart about this stock.

LPL Financial Holdings Inc (NASDAQ:LPLA) was in 33 hedge funds’ portfolios at the end of the first quarter of 2020. LPLA investors should pay attention to a decrease in hedge fund interest in recent months. There were 41 hedge funds in our database with LPLA positions at the end of the previous quarter. Our calculations also showed that LPLA 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.

To most stock holders, hedge funds are perceived as slow, old financial tools of the past. While there are over 8000 funds trading today, Our experts look at the elite of this club, about 850 funds. These hedge fund managers command the majority of the smart money’s total asset base, and by watching their best equity investments, Insider Monkey has discovered a few investment strategies that have historically surpassed the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Steven Cohen

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 peek at the latest hedge fund action surrounding LPL Financial Holdings Inc (NASDAQ:LPLA).

How are hedge funds trading LPL Financial Holdings Inc (NASDAQ:LPLA)?

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LPLA over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Is LPLA A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Robert Pohly’s Samlyn Capital has the biggest position in LPL Financial Holdings Inc (NASDAQ:LPLA), worth close to $205.4 million, accounting for 5.2% of its total 13F portfolio. Sitting at the No. 2 spot is Southpoint Capital Advisors, led by John Smith Clark, holding a $104.8 million position; the fund has 3.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish contain Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC, Steve Cohen’s Point72 Asset Management and James Parsons’s Junto Capital Management. In terms of the portfolio weights assigned to each position Samlyn Capital allocated the biggest weight to LPL Financial Holdings Inc (NASDAQ:LPLA), around 5.18% of its 13F portfolio. Junto Capital Management is also relatively very bullish on the stock, setting aside 4.83 percent of its 13F equity portfolio to LPLA.

Since LPL Financial Holdings Inc (NASDAQ:LPLA) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers that slashed their entire stakes heading into Q4. It’s worth mentioning that Jeffrey Hoffner’s Engle Capital dumped the biggest position of the “upper crust” of funds followed by Insider Monkey, worth an estimated $55.4 million in stock, and Jacob Doft’s Highline Capital Management was right behind this move, as the fund cut about $47.6 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 8 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as LPL Financial Holdings Inc (NASDAQ:LPLA) but similarly valued. These stocks are Cousins Properties Incorporated (NYSE:CUZ), Signature Bank (NASDAQ:SBNY), JBG SMITH Properties (NYSE:JBGS), and Portland General Electric Company (NYSE:POR). This group of stocks’ market valuations match LPLA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CUZ 22 76929 10
SBNY 19 262247 -2
JBGS 20 318961 1
POR 23 247138 -4
Average 21 226319 1.25

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 $226 million. That figure was $748 million in LPLA’s case. Portland General Electric Company (NYSE:POR) is the most popular stock in this table. On the other hand Signature Bank (NASDAQ:SBNY) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks LPL Financial Holdings Inc (NASDAQ:LPLA) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on LPLA as the stock returned 44.5% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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