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 (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 Life Storage, Inc. (NYSE:LSI) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Life Storage, Inc. (NYSE:LSI) shareholders have witnessed a decrease in hedge fund interest in recent months. Life Storage, Inc. (NYSE:LSI) was in 19 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 22. There were 22 hedge funds in our database with LSI positions at the end of the first quarter. Our calculations also showed that LSI isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
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 S&P 500 ETFs by 58 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.
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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind let’s go over the key hedge fund action surrounding Life Storage, Inc. (NYSE:LSI).
What does smart money think about Life Storage, Inc. (NYSE:LSI)?
At the end of June, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in LSI over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Echo Street Capital Management, managed by Greg Poole, holds the number one position in Life Storage, Inc. (NYSE:LSI). Echo Street Capital Management has a $39.2 million position in the stock, comprising 0.5% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, which holds a $26.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions contain Israel Englander’s Millennium Management, Stuart J. Zimmer’s Zimmer Partners and Ken Fisher’s Fisher Asset Management. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Life Storage, Inc. (NYSE:LSI), around 0.94% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, dishing out 0.53 percent of its 13F equity portfolio to LSI.
Due to the fact that Life Storage, Inc. (NYSE:LSI) has faced falling interest from hedge fund managers, we can see that there exists a select few money managers that decided to sell off their full holdings by the end of the second quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest position of all the hedgies watched by Insider Monkey, comprising close to $15.8 million in stock, and Mark Coe’s Intrinsic Edge Capital was right behind this move, as the fund said goodbye to about $0.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds by the end of the second quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Life Storage, Inc. (NYSE:LSI) but similarly valued. We will take a look at Descartes Systems Group (NASDAQ:DSGX), Vertiv Holdings Co (NYSE:VRT), MDU Resources Group Inc (NYSE:MDU), MSA Safety Incorporated (NYSE:MSA), Alaska Air Group, Inc. (NYSE:ALK), Cousins Properties Incorporated (NYSE:CUZ), and Agora, Inc. (NASDAQ:API). This group of stocks’ market valuations are similar to LSI’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 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $253 million. That figure was $138 million in LSI’s case. Vertiv Holdings Co (NYSE:VRT) is the most popular stock in this table. On the other hand Descartes Systems Group (NASDAQ:DSGX) is the least popular one with only 10 bullish hedge fund positions. Life Storage, Inc. (NYSE:LSI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LSI is 42.9. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on LSI as the stock returned 12.1% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.