Is Lloyds Banking Group PLC (LYG) A Good Stock To Buy?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Lloyds Banking Group PLC (NYSE:LYG) in this article.

Is Lloyds Banking Group (LYG) a good stock to buy now? LYG investors should pay attention to a decrease in support from the world’s most elite money managers of late. Lloyds Banking Group PLC (NYSE:LYG) was in 5 hedge funds’ portfolios at the end of September. The all time high for this statistics is 11. There were 7 hedge funds in our database with LYG holdings at the end of June. Our calculations also showed that LYG 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.


Ken Fisher of Fisher Asset Management

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. Keeping this in mind we’re going to go over the key hedge fund action surrounding Lloyds Banking Group PLC (NYSE:LYG).

What have hedge funds been doing with Lloyds Banking Group PLC (NYSE:LYG)?

Heading into the fourth quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in LYG a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is LYG A Good Stock To Buy?

More specifically, Millennium Management was the largest shareholder of Lloyds Banking Group PLC (NYSE:LYG), with a stake worth $2.5 million reported as of the end of September. Trailing Millennium Management was Renaissance Technologies, which amassed a stake valued at $0.9 million. Citadel Investment Group, Fisher Asset Management, and Basswood Capital 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 Millennium Management allocated the biggest weight to Lloyds Banking Group PLC (NYSE:LYG), around 0.0031% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.0009 percent of its 13F equity portfolio to LYG.

Seeing as Lloyds Banking Group PLC (NYSE:LYG) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds that decided to sell off their full holdings in the third quarter. Intriguingly, John Overdeck and David Siegel’s Two Sigma Advisors sold off the biggest investment of all the hedgies watched by Insider Monkey, valued at an estimated $0.3 million in stock. Phil Stone’s fund, Fourthstone LLC, also said goodbye to its stock, about $0.1 million worth. These transactions are important to note, as total hedge fund interest was cut by 2 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Lloyds Banking Group PLC (NYSE:LYG). These stocks are XP Inc. (NASDAQ:XP), Welltower Inc. (NYSE:WELL), Yandex NV (NASDAQ:YNDX), AMETEK, Inc. (NYSE:AME), Freeport-McMoRan Inc. (NYSE:FCX), Phillips 66 (NYSE:PSX), and TELUS Corporation (NYSE:TU). This group of stocks’ market valuations match LYG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
XP 20 448147 -1
WELL 25 603202 -2
YNDX 33 1588423 -11
AME 37 919920 -3
FCX 57 1578989 4
PSX 27 203563 -15
TU 12 163923 -3
Average 30.1 786595 -4.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $787 million. That figure was $3 million in LYG’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Lloyds Banking Group PLC (NYSE:LYG) is even less popular than TU. Our overall hedge fund sentiment score for LYG is 16.6. 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. Hedge funds clearly dropped the ball on LYG as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on LYG as the stock returned 49.2% since Q3 (through November 27th) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.