Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.
LKQ Corporation (NASDAQ:LKQ) has seen an increase in activity from the world’s largest hedge funds in recent months. LKQ was in 43 hedge funds’ portfolios at the end of March. There were 40 hedge funds in our database with LKQ holdings at the end of the previous quarter. Our calculations also showed that LKQ 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 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.
We’re going to view the latest hedge fund action encompassing LKQ Corporation (NASDAQ:LKQ).
How are hedge funds trading LKQ Corporation (NASDAQ:LKQ)?
Heading into the second quarter of 2019, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in LKQ over the last 15 quarters. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in LKQ Corporation (NASDAQ:LKQ) was held by Southpoint Capital Advisors, which reported holding $140.5 million worth of stock at the end of March. It was followed by Hound Partners with a $128.5 million position. Other investors bullish on the company included Steadfast Capital Management, Park Presidio Capital, and Atalan Capital.
As aggregate interest increased, key hedge funds were leading the bulls’ herd. Southpoint Capital Advisors, managed by John Smith Clark, established the most outsized position in LKQ Corporation (NASDAQ:LKQ). Southpoint Capital Advisors had $140.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $14.2 million position during the quarter. The other funds with brand new LKQ positions are Principal Global Investors’s Columbus Circle Investors, Steve Cohen’s Point72 Asset Management, and Joseph Mathias’s Concourse Capital Management.
Let’s go over hedge fund activity in other stocks similar to LKQ Corporation (NASDAQ:LKQ). These stocks are Reinsurance Group of America Inc (NYSE:RGA), Molina Healthcare, Inc. (NYSE:MOH), VICI Properties Inc. (NYSE:VICI), and Alleghany Corporation (NYSE:Y). This group of stocks’ market caps are similar to LKQ’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $917 million. That figure was $1068 million in LKQ’s case. VICI Properties Inc. (NYSE:VICI) is the most popular stock in this table. On the other hand Reinsurance Group of America Inc (NYSE:RGA) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks LKQ Corporation (NASDAQ:LKQ) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately LKQ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LKQ were disappointed as the stock returned -8.9% 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.