Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Leaf Group Ltd (NYSE:LEAF) to find out whether there were any major changes in hedge funds’ views.
Is LEAF a good stock to buy now? Leaf Group Ltd (NYSE:LEAF) investors should be aware of a decrease in enthusiasm from smart money in recent months. Leaf Group Ltd (NYSE:LEAF) was in 10 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 11. There were 11 hedge funds in our database with LEAF holdings at the end of June. Our calculations also showed that LEAF 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.
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 66 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.
Donald Sussman of Paloma Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now let’s check out the new hedge fund action surrounding Leaf Group Ltd (NYSE:LEAF).
Do Hedge Funds Think LEAF Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LEAF over the last 21 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Osmium Partners was the largest shareholder of Leaf Group Ltd (NYSE:LEAF), with a stake worth $9.2 million reported as of the end of September. Trailing Osmium Partners was Renaissance Technologies, which amassed a stake valued at $7.8 million. PEAK6 Capital Management, Voss Capital, and Royce & Associates 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 Osmium Partners allocated the biggest weight to Leaf Group Ltd (NYSE:LEAF), around 23.21% of its 13F portfolio. Voss Capital is also relatively very bullish on the stock, dishing out 0.5 percent of its 13F equity portfolio to LEAF.
Because Leaf Group Ltd (NYSE:LEAF) has experienced falling interest from hedge fund managers, we can see that there exists a select few hedge funds that decided to sell off their full holdings last quarter. Interestingly, Jim Roumell’s Roumell Asset Management dropped the largest stake of the 750 funds followed by Insider Monkey, worth an estimated $4.7 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund dumped about $0.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 1 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Leaf Group Ltd (NYSE:LEAF) but similarly valued. We will take a look at Contura Energy, Inc. (NYSE:CTRA), DIRTT Environmental Solutions Ltd. (NASDAQ:DRTT), GSI Technology, Inc. (NASDAQ:GSIT), Nano Dimension Ltd. (NASDAQ:NNDM), Bel Fuse, Inc. (NASDAQ:BELFB), Radcom Ltd. (NASDAQ:RDCM), and Evolus, Inc. (NASDAQ:EOLS). This group of stocks’ market caps match LEAF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CTRA | 18 | 46876 | -1 |
| DRTT | 8 | 24577 | -1 |
| GSIT | 4 | 12757 | -1 |
| NNDM | 2 | 172 | 1 |
| BELFB | 7 | 11262 | -1 |
| RDCM | 4 | 9676 | 0 |
| EOLS | 10 | 2356 | 1 |
| Average | 7.6 | 15382 | -0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.6 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $27 million in LEAF’s case. Contura Energy, Inc. (NYSE:CTRA) is the most popular stock in this table. On the other hand Nano Dimension Ltd. (NASDAQ:NNDM) is the least popular one with only 2 bullish hedge fund positions. Leaf Group Ltd (NYSE:LEAF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LEAF is 56.3. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on LEAF as the stock returned 14.7% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Leaf Group Ltd. (NYSE:LEAF)
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Disclosure: None. This article was originally published at Insider Monkey.
