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Hedge Funds Never Been This Bullish On LPL Financial Holdings Inc (LPLA)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of LPL Financial Holdings Inc (NASDAQ:LPLA) based on that data and determine whether they were really smart about the stock.

LPL Financial Holdings Inc (NASDAQ:LPLA) investors should be aware of an increase in enthusiasm from smart money in recent months. LPL Financial Holdings Inc (NASDAQ:LPLA) was in 43 hedge funds’ portfolios at the end of June. The all time high for this statistics is 41. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that LPLA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Nathaniel August - Mangrove Partners

Nathaniel August of Mangrove Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we’re going to take a peek at the key hedge fund action encompassing LPL Financial Holdings Inc (NASDAQ:LPLA).

What have hedge funds been doing with LPL Financial Holdings Inc (NASDAQ:LPLA)?

Heading into the third quarter of 2020, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 30% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LPLA over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Samlyn Capital, managed by Robert Pohly, holds the biggest position in LPL Financial Holdings Inc (NASDAQ:LPLA). Samlyn Capital has a $278.4 million position in the stock, comprising 5.1% of its 13F portfolio. The second most bullish fund manager is Southpoint Capital Advisors, managed by John Smith Clark, which holds a $113.7 million position; the fund has 2.8% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish consist of Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC, James Parsons’s Junto Capital Management and Jeffrey Hoffner’s Engle Capital. In terms of the portfolio weights assigned to each position Engle Capital allocated the biggest weight to LPL Financial Holdings Inc (NASDAQ:LPLA), around 6.32% of its 13F portfolio. Samlyn Capital is also relatively very bullish on the stock, setting aside 5.15 percent of its 13F equity portfolio to LPLA.

Now, key money managers were breaking ground themselves. Engle Capital, managed by Jeffrey Hoffner, assembled the most outsized position in LPL Financial Holdings Inc (NASDAQ:LPLA). Engle Capital had $39.2 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $38.1 million position during the quarter. The other funds with brand new LPLA positions are Sander Gerber’s Hudson Bay Capital Management, Principal Global Investors’s Columbus Circle Investors, and Nathaniel August’s Mangrove Partners.

Let’s now review hedge fund activity in other stocks similar to LPL Financial Holdings Inc (NASDAQ:LPLA). These stocks are BanColombia S.A. (NYSE:CIB), Assurant, Inc. (NYSE:AIZ), Encompass Health Corporation (NYSE:EHC), ADT Inc. (NYSE:ADT), Adaptive Biotechnologies Corporation (NASDAQ:ADPT), Zai Lab Limited (NASDAQ:ZLAB), and Jazz Pharmaceuticals Plc (NASDAQ:JAZZ). All of these stocks’ market caps are closest to LPLA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CIB 9 69617 -2
AIZ 31 822763 -2
EHC 33 498955 0
ADT 20 207319 0
ADPT 28 2690388 10
ZLAB 27 416774 5
JAZZ 34 1164286 5
Average 26 838586 2.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $839 million. That figure was $893 million in LPLA’s case. Jazz Pharmaceuticals Plc (NASDAQ:JAZZ) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks LPL Financial Holdings Inc (NASDAQ:LPLA) is more popular among hedge funds. Our overall hedge fund sentiment score for LPLA is 90. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately LPLA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LPLA were disappointed as the stock returned 5.1% since the end of the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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