At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Jefferies Financial Group Inc. (NYSE:JEF).
Is JEF a good stock to buy? Jefferies Financial Group Inc. (NYSE:JEF) shareholders have witnessed a decrease in enthusiasm from smart money recently. Jefferies Financial Group Inc. (NYSE:JEF) was in 33 hedge funds’ portfolios at the end of September. The all time high for this statistic is 39. There were 37 hedge funds in our database with JEF positions at the end of the second quarter. Our calculations also showed that JEF isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to take a look at the new hedge fund action regarding Jefferies Financial Group Inc. (NYSE:JEF).
Do Hedge Funds Think JEF Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in JEF a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, First Pacific Advisors LLC was the largest shareholder of Jefferies Financial Group Inc. (NYSE:JEF), with a stake worth $310 million reported as of the end of September. Trailing First Pacific Advisors LLC was Arrowstreet Capital, which amassed a stake valued at $69 million. Mason Capital Management, Moerus Capital Management, and Private Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Moerus Capital Management allocated the biggest weight to Jefferies Financial Group Inc. (NYSE:JEF), around 17.66% of its 13F portfolio. Pacifica Capital Investments is also relatively very bullish on the stock, earmarking 7.18 percent of its 13F equity portfolio to JEF.
Due to the fact that Jefferies Financial Group Inc. (NYSE:JEF) has faced declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedgies that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that Peter Seuss’s Prana Capital Management dumped the biggest investment of the 750 funds watched by Insider Monkey, worth close to $3.6 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund said goodbye to about $3.4 million worth. These moves are important to note, as total hedge fund interest fell by 4 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Jefferies Financial Group Inc. (NYSE:JEF). We will take a look at Brunswick Corporation (NYSE:BC), Owl Rock Capital Corporation (NYSE:ORCC), East West Bancorp, Inc. (NASDAQ:EWBC), BRP Inc. (NASDAQ:DOOO), AutoNation, Inc. (NYSE:AN), Tempur Sealy International Inc. (NYSE:TPX), and Performance Food Group Company (NYSE:PFGC). This group of stocks’ market valuations are similar to JEF’s market valuation.
|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 27 hedge funds with bullish positions and the average amount invested in these stocks was $436 million. That figure was $600 million in JEF’s case. Tempur Sealy International Inc. (NYSE:TPX) is the most popular stock in this table. On the other hand BRP Inc. (NASDAQ:DOOO) is the least popular one with only 12 bullish hedge fund positions. Jefferies Financial Group Inc. (NYSE:JEF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for JEF is 57.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on JEF as the stock returned 31.4% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.