We can judge whether Leaf Group Ltd. (NYSE:LEAF) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Leaf Group Ltd. (NYSE:LEAF) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds’ portfolios at the end of the third quarter of 2019. At the end of this article we will also compare LEAF to other stocks including Savara, Inc. (NASDAQ:SVRA), Neoleukin Therapeutics, Inc. (NASDAQ:NLTX), and Guaranty Federal Bancshares, Inc. (NASDAQ:GFED) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Matthew Hulsizer of PEAK6 Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a gander at the recent hedge fund action surrounding Leaf Group Ltd. (NYSE:LEAF).
How have hedgies been trading Leaf Group Ltd. (NYSE:LEAF)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in LEAF a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Leaf Group Ltd. (NYSE:LEAF) was held by Park West Asset Management, which reported holding $10.7 million worth of stock at the end of September. It was followed by Osmium Partners with a $4.7 million position. Other investors bullish on the company included Renaissance Technologies, PEAK6 Capital Management, and Roumell Asset Management. In terms of the portfolio weights assigned to each position Osmium Partners allocated the biggest weight to Leaf Group Ltd. (NYSE:LEAF), around 5.92% of its 13F portfolio. Roumell Asset Management is also relatively very bullish on the stock, dishing out 3.81 percent of its 13F equity portfolio to LEAF.
Seeing as Leaf Group Ltd. (NYSE:LEAF) has experienced bearish sentiment from hedge fund managers, logic holds that there was a specific group of fund managers who were dropping their full holdings in the third quarter. Intriguingly, John H Lewis’s Osmium Partners said goodbye to the biggest position of the 750 funds monitored by Insider Monkey, valued at close to $5.3 million in stock. Israel Englander’s fund, Millennium Management, also dumped its stock, about $0.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Leaf Group Ltd. (NYSE:LEAF) but similarly valued. These stocks are Savara, Inc. (NASDAQ:SVRA), Neoleukin Therapeutics, Inc. (NASDAQ:NLTX), Guaranty Federal Bancshares, Inc. (NASDAQ:GFED), and Chembio Diagnostics Inc (NASDAQ:CEMI). This group of stocks’ market values are similar to LEAF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SVRA | 10 | 18395 | 0 |
| NLTX | 9 | 45869 | 1 |
| GFED | 2 | 3370 | 0 |
| CEMI | 2 | 11357 | -2 |
| Average | 5.75 | 19748 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $26 million in LEAF’s case. Savara, Inc. (NASDAQ:SVRA) is the most popular stock in this table. On the other hand Guaranty Federal Bancshares, Inc. (NASDAQ:GFED) 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LEAF wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LEAF were disappointed as the stock returned -11.9% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
