Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. Between November 1, 2014 and October 30 of this year, less than 49% of the stocks in the S&P 500 beat the market. However, hedge funds’ top 30 stock picks from the index had a much higher success rate than this, at 63%. The returns from these 30 stocks also easily bested the broader market, at 9.5% compared to 5.2%, despite there being a few duds in there like Micron and Anadarko (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is Ladder Capital Corp (NYSE:LADR) undervalued? The smart money is becoming less hopeful. The number of long hedge fund positions dropped by 2 recently. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Houlihan Lokey Inc (NYSE:HLI), Jumei International Holding Ltd (ADR) (NYSE:JMEI), and National Beverage Corp. (NASDAQ:FIZZ) to gather more data points.
To most traders, hedge funds are assumed to be worthless, outdated investment tools of years past. While there are over an 8000 funds in operation at present, We hone in on the moguls of this group, about 700 funds. Most estimates calculate that this group of people have their hands on the lion’s share of the hedge fund industry’s total asset base, and by keeping track of their inimitable picks, Insider Monkey has revealed a few investment strategies that have historically beaten the market. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points per year for a decade in their back tests.
Now, we’re going to take a look at the new action encompassing Ladder Capital Corp (NYSE:LADR).
Hedge fund activity in Ladder Capital Corp (NYSE:LADR)
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the second quarter. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Glenn J. Krevlin’s Glenhill Advisors has the most valuable position in Ladder Capital Corp (NYSE:LADR), worth close to $30.1 million, comprising 2.4% of its total 13F portfolio. Sitting at the No. 2 spot is Clough Capital Partners, led by Charles Clough, holding a $10 million position; 0.4% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish consist of J. Alan Reid, Jr.’s Forward Management, Anand Parekh’s Alyeska Investment Group and Steve Pei’s Gratia Capital.
Judging by the fact that Ladder Capital Corp (NYSE:LADR) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few hedgies that elected to cut their positions entirely heading into Q4. Interestingly, Geoffrey Raynor’s Q Investments (Specter Holdings) cut the largest position of the 700 funds tracked by Insider Monkey, comprising close to $2 million in stock. Peter Muller’s fund, PDT Partners, also cut its stock, about $0.8 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks similar to Ladder Capital Corp (NYSE:LADR). These stocks are Houlihan Lokey Inc (NYSE:HLI), Jumei International Holding Ltd (ADR) (NYSE:JMEI), National Beverage Corp. (NASDAQ:FIZZ), and MGE Energy, Inc. (NASDAQ:MGEE). This group of stocks’ market valuations resemble LADR’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $74 million in LADR’s case. Houlihan Lokey Inc (NYSE:HLI) is the most popular stock in this table. On the other hand MGE Energy, Inc. (NASDAQ:MGEE) is the least popular one with only 7 bullish hedge fund positions. Ladder Capital Corp (NYSE:LADR) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HLI might be a better candidate to consider a long position.