Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Loews Corporation (NYSE:L).
Loews Corporation (NYSE:L) was in 25 hedge funds’ portfolios at the end of the third quarter of 2019. L has seen an increase in hedge fund sentiment in recent months. There were 21 hedge funds in our database with L holdings at the end of the previous quarter. Our calculations also showed that L isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s view the fresh hedge fund action regarding Loews Corporation (NYSE:L).
How are hedge funds trading Loews Corporation (NYSE:L)?
At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in L a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Diamond Hill Capital was the largest shareholder of Loews Corporation (NYSE:L), with a stake worth $148.1 million reported as of the end of September. Trailing Diamond Hill Capital was Wallace Capital Management, which amassed a stake valued at $21.9 million. Levin Capital Strategies, Millennium Management, and GLG Partners 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 Wallace Capital Management allocated the biggest weight to Loews Corporation (NYSE:L), around 2.86% of its portfolio. Levin Capital Strategies is also relatively very bullish on the stock, setting aside 1.65 percent of its 13F equity portfolio to L.
As aggregate interest increased, key money managers were breaking ground themselves. Tudor Investment Corp, managed by Paul Tudor Jones, assembled the most outsized position in Loews Corporation (NYSE:L). Tudor Investment Corp had $1.7 million invested in the company at the end of the quarter. Renee Yao’s Neo Ivy Capital also made a $0.6 million investment in the stock during the quarter. The other funds with brand new L positions are John Brandmeyer’s Cognios Capital, Alec Litowitz and Ross Laser’s Magnetar Capital, and Bruce Kovner’s Caxton Associates.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Loews Corporation (NYSE:L) but similarly valued. We will take a look at Deutsche Bank Aktiengesellschaft (NYSE:DB), Nucor Corporation (NYSE:NUE), W.P. Carey Inc. (NYSE:WPC), and Apollo Global Management, Inc. (NYSE:APO). This group of stocks’ market valuations match L’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DB | 12 | 983289 | 1 |
| NUE | 26 | 167282 | 4 |
| WPC | 14 | 38560 | -2 |
| APO | 24 | 1733222 | 1 |
| Average | 19 | 730588 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $731 million. That figure was $224 million in L’s case. Nucor Corporation (NYSE:NUE) is the most popular stock in this table. On the other hand Deutsche Bank Aktiengesellschaft (NYSE:DB) is the least popular one with only 12 bullish hedge fund positions. Loews Corporation (NYSE:L) 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 L wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on L were disappointed as the stock returned -1% 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.
