Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 2.5 months of this year the Standard and Poor’s 500 Index returned approximately 13.1% (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only 5% due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns (5%) versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Loral Space & Communications Inc. (NASDAQ:LORL).
Is Loral Space & Communications Inc. (NASDAQ:LORL) a healthy stock for your portfolio? Money managers are getting less optimistic. The number of long hedge fund positions fell by 4 in recent months. Our calculations also showed that lorl isn’t among the 30 most popular stocks among hedge funds. LORL was in 18 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 22 hedge funds in our database with LORL positions at the end of the previous quarter.
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a glance at the key hedge fund action encompassing Loral Space & Communications Inc. (NASDAQ:LORL).
Hedge fund activity in Loral Space & Communications Inc. (NASDAQ:LORL)
Heading into the first quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards LORL over the last 14 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, MHR Fund Management was the largest shareholder of Loral Space & Communications Inc.(NASDAQ:LORL), with a stake worth $317.7 million reported as of the end of December. Trailing MHR Fund Management was Highland Capital Management, which amassed a stake valued at $76.9 million. Solus Alternative Asset Management, GAMCO Investors, and Omega Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Since Loral Space & Communications Inc. (NASDAQ:LORL) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedgies that decided to sell off their entire stakes by the end of the third quarter. It’s worth mentioning that Brett Hendrickson’s Nokomis Capital dropped the largest stake of the 700 funds tracked by Insider Monkey, totaling close to $14.8 million in stock. Jim Simons’s fund, Renaissance Technologies, also dropped its stock, about $4.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 4 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Loral Space & Communications Inc. (NASDAQ:LORL) but similarly valued. We will take a look at Natus Medical Inc (NASDAQ:BABY), Hertz Global Holdings, Inc. (NYSE:HTZ), Tompkins Financial Corporation (NYSEAMEX:TMP), and Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR). This group of stocks’ market valuations are closest to LORL’s market valuation.
|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 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $245 million. That figure was $565 million in LORL’s case. Hertz Global Holdings, Inc. (NYSE:HTZ) is the most popular stock in this table. On the other hand Tompkins Financial Corporation (NYSEAMEX:TMP) is the least popular one with only 4 bullish hedge fund positions. Loral Space & Communications Inc. (NASDAQ:LORL) 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 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 LORL wasn’t nearly as popular as these 15 stock and hedge funds that were betting on LORL were disappointed as the stock returned 1.8% 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.