Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards LSI Industries, Inc. (NASDAQ:LYTS).
Is LYTS a good stock to buy now? Money managers were taking an optimistic view. The number of bullish hedge fund bets inched up by 3 in recent months. LSI Industries, Inc. (NASDAQ:LYTS) was in 9 hedge funds’ portfolios at the end of September. The all time high for this statistic is 14. Our calculations also showed that LYTS 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). There were 6 hedge funds in our database with LYTS positions at the end of the second quarter.
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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 go over the key hedge fund action encompassing LSI Industries, Inc. (NASDAQ:LYTS).
Do Hedge Funds Think LYTS Is A Good Stock To Buy Now?
At third quarter’s end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in LYTS a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in LSI Industries, Inc. (NASDAQ:LYTS) was held by Royce & Associates, which reported holding $14.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $6.5 million position. Other investors bullish on the company included Arrowstreet Capital, Two Sigma Advisors, and Winton Capital Management. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to LSI Industries, Inc. (NASDAQ:LYTS), around 0.25% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.16 percent of its 13F equity portfolio to LYTS.
As one would reasonably expect, key money managers have jumped into LSI Industries, Inc. (NASDAQ:LYTS) headfirst. Zebra Capital Management, managed by Roger Ibbotson, established the biggest position in LSI Industries, Inc. (NASDAQ:LYTS). Zebra Capital Management had $0.2 million invested in the company at the end of the quarter. Thomas Bailard’s Bailard Inc also made a $0.1 million investment in the stock during the quarter. The only other fund with a brand new LYTS position is Andre F. Perold’s HighVista Strategies.
Let’s now take a look at hedge fund activity in other stocks similar to LSI Industries, Inc. (NASDAQ:LYTS). These stocks are Gannett Co., Inc. (NYSE:GCI), LCNB Corp. (NASDAQ:LCNB), Stratus Properties Inc. (NASDAQ:STRS), Protara Therapeutics, Inc. (NASDAQ:TARA), Daktronics, Inc. (NASDAQ:DAKT), Titan International Inc (NYSE:TWI), and NeuBase Therapeutics, Inc. (NASDAQ:NBSE). This group of stocks’ market values are closest to LYTS’s market value.
|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 9.1 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $24 million in LYTS’s case. Protara Therapeutics, Inc. (NASDAQ:TARA) is the most popular stock in this table. On the other hand LCNB Corp. (NASDAQ:LCNB) is the least popular one with only 2 bullish hedge fund positions. LSI Industries, Inc. (NASDAQ:LYTS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LYTS is 54.2. 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. A small number of hedge funds were also right about betting on LYTS as the stock returned 22.9% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.