Hedge Funds Have Never Been This Bullish On Luxfer Holdings PLC (LXFR)

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first quarter, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first quarter still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Luxfer Holdings PLC (NYSE:LXFR) changed recently.

Luxfer Holdings PLC (NYSE:LXFR) was in 14 hedge funds’ portfolios at the end of March. LXFR investors should be aware of an increase in support from the world’s most elite money managers lately. There were 12 hedge funds in our database with LXFR positions at the end of the previous quarter. Our calculations also showed that LXFR isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Richard Driehaus

We’re going to take a look at the fresh hedge fund action surrounding Luxfer Holdings PLC (NYSE:LXFR).

Hedge fund activity in Luxfer Holdings PLC (NYSE:LXFR)

Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LXFR over the last 15 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).


Among these funds, Nantahala Capital Management held the most valuable stake in Luxfer Holdings PLC (NYSE:LXFR), which was worth $65 million at the end of the first quarter. On the second spot was Renaissance Technologies which amassed $21 million worth of shares. Moreover, Ancora Advisors, Royce & Associates, and Driehaus Capital were also bullish on Luxfer Holdings PLC (NYSE:LXFR), allocating a large percentage of their portfolios to this stock.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. ExodusPoint Capital, managed by Michael Gelband, assembled the biggest position in Luxfer Holdings PLC (NYSE:LXFR). ExodusPoint Capital had $0.6 million invested in the company at the end of the quarter. Robert B. Gillam’s McKinley Capital Management also made a $0.1 million investment in the stock during the quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Luxfer Holdings PLC (NYSE:LXFR) but similarly valued. We will take a look at Eros International plc (NYSE:EROS), Village Farms International, Inc. (NASDAQ:VFF), Community Healthcare Trust Inc (NYSE:CHCT), and United Natural Foods, Inc. (NYSE:UNFI). This group of stocks’ market valuations match LXFR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EROS 6 16932 2
VFF 3 1872 3
CHCT 9 79341 0
UNFI 12 48030 -3
Average 7.5 36544 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $115 million in LXFR’s case. United Natural Foods, Inc. (NYSE:UNFI) is the most popular stock in this table. On the other hand Village Farms International, Inc. (NASDAQ:VFF) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Luxfer Holdings PLC (NYSE:LXFR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately LXFR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LXFR were disappointed as the stock returned -5.9% during the same period 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 13 of these stocks already outperformed the market in Q2.

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