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Do Hedge Funds Love LF Capital Acquistion Corp. (LFAC)?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is LF Capital Acquistion Corp. (NASDAQ:LFAC), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

LF Capital Acquistion Corp. (NASDAQ:LFAC) has experienced a decrease in support from the world’s most elite money managers lately. Our calculations also showed that LFAC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Glazer of Glazer Capital

Paul Glazer of Glazer Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a look at the key hedge fund action surrounding LF Capital Acquistion Corp. (NASDAQ:LFAC).

Hedge fund activity in LF Capital Acquistion Corp. (NASDAQ:LFAC)

Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LFAC over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in LF Capital Acquistion Corp. (NASDAQ:LFAC) was held by Hawkeye Capital, which reported holding $11.3 million worth of stock at the end of September. It was followed by Glazer Capital with a $5.3 million position. Other investors bullish on the company included Vertex One Asset Management, Bulldog Investors, and Empyrean Capital Partners. In terms of the portfolio weights assigned to each position Hawkeye Capital allocated the biggest weight to LF Capital Acquistion Corp. (NASDAQ:LFAC), around 15.07% of its 13F portfolio. Bulldog Investors is also relatively very bullish on the stock, dishing out 0.78 percent of its 13F equity portfolio to LFAC.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Weiss Asset Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified LFAC as a viable investment and initiated a position in the stock.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as LF Capital Acquistion Corp. (NASDAQ:LFAC) but similarly valued. These stocks are NII Holdings, Inc. (NASDAQ:NIHD), Fang Holdings Limited (NYSE:SFUN), Bank of Commerce Holdings (NASDAQ:BOCH), and Spero Therapeutics, Inc. (NASDAQ:SPRO). This group of stocks’ market valuations are similar to LFAC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NIHD 14 69608 -1
SFUN 5 1116 -1
BOCH 5 11808 1
SPRO 7 32359 -1
Average 7.75 28723 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $27 million in LFAC’s case. NII Holdings, Inc. (NASDAQ:NIHD) is the most popular stock in this table. On the other hand Fang Holdings Limited (NYSE:SFUN) is the least popular one with only 5 bullish hedge fund positions. LF Capital Acquistion Corp. (NASDAQ:LFAC) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LFAC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LFAC were disappointed as the stock returned 0.2% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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