How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding LTC Properties Inc (NYSE:LTC) and determine whether hedge funds had an edge regarding this stock.
Is LTC Properties Inc (NYSE:LTC) a buy here? Hedge funds were getting more bullish. The number of bullish hedge fund bets went up by 1 in recent months. Our calculations also showed that LTC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). LTC was in 11 hedge funds’ portfolios at the end of March. There were 10 hedge funds in our database with LTC positions at the end of the previous quarter.
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 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. 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s view the new hedge fund action encompassing LTC Properties Inc (NYSE:LTC).
What have hedge funds been doing with LTC Properties Inc (NYSE:LTC)?
Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in LTC a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in LTC Properties Inc (NYSE:LTC), which was worth $10.1 million at the end of the third quarter. On the second spot was Winton Capital Management which amassed $6.9 million worth of shares. Citadel Investment Group, Two Sigma Advisors, and Arrowstreet 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 Quantinno Capital allocated the biggest weight to LTC Properties Inc (NYSE:LTC), around 0.29% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.18 percent of its 13F equity portfolio to LTC.
Now, key hedge funds have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the largest position in LTC Properties Inc (NYSE:LTC). Arrowstreet Capital had $1.3 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $0.7 million position during the quarter. The other funds with brand new LTC positions are Hoon Kim’s Quantinno Capital, Paul Tudor Jones’s Tudor Investment Corp, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s go over hedge fund activity in other stocks similar to LTC Properties Inc (NYSE:LTC). We will take a look at International Game Technology PLC (NYSE:IGT), Helios Technologies, Inc. (NASDAQ:HLIO), State Auto Financial Corporation (NASDAQ:STFC), and Nu Skin Enterprises, Inc. (NYSE:NUS). This group of stocks’ market caps match LTC’s market cap.
|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 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $25 million in LTC’s case. International Game Technology PLC (NYSE:IGT) is the most popular stock in this table. On the other hand Helios Technologies, Inc. (NASDAQ:HLIO) is the least popular one with only 4 bullish hedge fund positions. LTC Properties Inc (NYSE:LTC) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on LTC, though not to the same extent, as the stock returned 23.9% during the second quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.