Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Lazard Ltd (NYSE:LAZ) has experienced a decrease in hedge fund sentiment lately. LAZ was in 16 hedge funds’ portfolios at the end of December. There were 17 hedge funds in our database with LAZ positions at the end of the previous quarter. Our calculations also showed that LAZ isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 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.
Let’s take a gander at the latest hedge fund action regarding Lazard Ltd (NYSE:LAZ).
What does the smart money think about Lazard Ltd (NYSE:LAZ)?
At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in LAZ a year ago. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Ariel Investments held the most valuable stake in Lazard Ltd (NYSE:LAZ), which was worth $177.8 million at the end of the third quarter. On the second spot was Southeastern Asset Management which amassed $152.3 million worth of shares. Moreover, Fisher Asset Management, Royce & Associates, and Two Sigma Advisors were also bullish on Lazard Ltd (NYSE:LAZ), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Lazard Ltd (NYSE:LAZ) has faced bearish sentiment from the smart money, we can see that there is a sect of hedgies that decided to sell off their positions entirely last quarter. Interestingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital said goodbye to the largest stake of the “upper crust” of funds followed by Insider Monkey, worth an estimated $8.2 million in stock. Daniel Lascano’s fund, Lomas Capital Management, also dumped its stock, about $6.1 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Lazard Ltd (NYSE:LAZ) but similarly valued. We will take a look at Prosperity Bancshares, Inc. (NYSE:PB), W.R. Grace & Co. (NYSE:GRA), Life Storage, Inc. (NYSE:LSI), and Oshkosh Corporation (NYSE:OSK). This group of stocks’ market caps are closest to LAZ’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $571 million. That figure was $481 million in LAZ’s case. W.R. Grace & Co. (NYSE:GRA) is the most popular stock in this table. On the other hand Prosperity Bancshares, Inc. (NYSE:PB) is the least popular one with only 9 bullish hedge fund positions. Lazard Ltd (NYSE:LAZ) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately LAZ wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); LAZ investors were disappointed as the stock returned 1.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.