Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in La-Z-Boy Incorporated (NYSE:LZB)? The smart money sentiment can provide an answer to this question.
La-Z-Boy Incorporated (NYSE:LZB) has seen a decrease in activity from the world’s largest hedge funds in recent months. La-Z-Boy Incorporated (NYSE:LZB) was in 21 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 25. There were 24 hedge funds in our database with LZB holdings at the end of March. Our calculations also showed that LZB isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Paul Marshall of Marshall Wace
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now let’s review the recent hedge fund action surrounding La-Z-Boy Incorporated (NYSE:LZB).
Do Hedge Funds Think LZB Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LZB over the last 24 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of La-Z-Boy Incorporated (NYSE:LZB), with a stake worth $28.2 million reported as of the end of June. Trailing Arrowstreet Capital was Millennium Management, which amassed a stake valued at $25.1 million. Royce & Associates, GAMCO Investors, and AlphaCrest 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 AlphaCrest Capital Management allocated the biggest weight to La-Z-Boy Incorporated (NYSE:LZB), around 0.22% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.12 percent of its 13F equity portfolio to LZB.
Judging by the fact that La-Z-Boy Incorporated (NYSE:LZB) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedge funds who were dropping their positions entirely by the end of the second quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the biggest investment of all the hedgies watched by Insider Monkey, totaling an estimated $1.9 million in stock. Parvinder Thiara’s fund, Athanor Capital, also said goodbye to its stock, about $1.5 million worth. These transactions are interesting, as total hedge fund interest was cut by 3 funds by the end of the second quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as La-Z-Boy Incorporated (NYSE:LZB) but similarly valued. These stocks are Oxford Industries, Inc. (NYSE:OXM), Smith & Wesson Brands, Inc. (NASDAQ:SWBI), Alector, Inc. (NASDAQ:ALEC), Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), Anavex Life Sciences Corp. (NASDAQ:AVXL), ICF International Inc (NASDAQ:ICFI), and Compass Diversified Holdings (NYSE:CODI). This group of stocks’ market values are similar to LZB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OXM | 14 | 71802 | 7 |
| SWBI | 21 | 242514 | 3 |
| ALEC | 18 | 218745 | 3 |
| AUPH | 18 | 173527 | -9 |
| AVXL | 6 | 6987 | 1 |
| ICFI | 10 | 30014 | -2 |
| CODI | 4 | 44377 | -1 |
| Average | 13 | 112567 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $113 million. That figure was $102 million in LZB’s case. Smith & Wesson Brands, Inc. (NASDAQ:SWBI) is the most popular stock in this table. On the other hand Compass Diversified Holdings (NYSE:CODI) is the least popular one with only 4 bullish hedge fund positions. La-Z-Boy Incorporated (NYSE:LZB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LZB is 77.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately LZB wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on LZB were disappointed as the stock returned -8.1% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow La-Z-Boy Inc (NYSE:LZB)
Follow La-Z-Boy Inc (NYSE:LZB)
Suggested Articles:
- Top 10 Real Estate Billionaires In The World
- 25 Fastest Growing Mid Size Cities in the US
- Best and Worst Dating Apps in 2021
Disclosure: None. This article was originally published at Insider Monkey.
