Lexington Realty Trust (LXP): Hedge Funds Cashed Out Too Early

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Is Lexington Realty Trust (NYSE:LXP) the right investment to pursue these days? Hedge funds are taking a pessimistic view. The number of bullish hedge fund positions shrunk by 6 lately. Our calculations also showed that LXP isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the latest hedge fund action regarding Lexington Realty Trust (NYSE:LXP).

How have hedgies been trading Lexington Realty Trust (NYSE:LXP)?

At the end of the second quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in LXP over the last 16 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Roger Ibbotson Zebra Capital

Of the funds tracked by Insider Monkey, Clint Carlson’s Carlson Capital has the most valuable position in Lexington Realty Trust (NYSE:LXP), worth close to $30.9 million, amounting to 0.5% of its total 13F portfolio. The second most bullish fund manager is J. Alan Reid, Jr. of Forward Management, with a $16.6 million position; 2.9% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions contain Dmitry Balyasny’s Balyasny Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors and Renaissance Technologies.

Since Lexington Realty Trust (NYSE:LXP) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedgies that slashed their entire stakes last quarter. It’s worth mentioning that Benjamin A. Smith’s Laurion Capital Management dropped the largest position of the 750 funds watched by Insider Monkey, valued at close to $9.8 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also said goodbye to its stock, about $5.6 million worth. These moves are interesting, as aggregate hedge fund interest fell by 6 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Lexington Realty Trust (NYSE:LXP) but similarly valued. We will take a look at WSFS Financial Corporation (NASDAQ:WSFS), RH (NYSE:RH), Genomic Health, Inc. (NASDAQ:GHDX), and WD-40 Company (NASDAQ:WDFC). This group of stocks’ market caps are similar to LXP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WSFS 15 164450 -5
RH 28 391899 -8
GHDX 18 880407 -7
WDFC 15 127686 1
Average 19 391111 -4.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $391 million. That figure was $97 million in LXP’s case. RH (NYSE:RH) is the most popular stock in this table. On the other hand WSFS Financial Corporation (NASDAQ:WSFS) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Lexington Realty Trust (NYSE:LXP) is even less popular than WSFS. Hedge funds clearly dropped the ball on LXP 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on LXP as the stock returned 10% during the third quarter and outperformed the market by an even larger margin.

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