Smart Money Remains Underweight Lancaster Colony Corp. (LANC)

Investing in small-cap stocks has historically been a way to outperform the market, as small-cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The time period between June 25 and the end of October was one of those periods, as the Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller-cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of investor holdings to find out what the smart money thinks of Lancaster Colony Corp. (NASDAQ:LANC).

Lancaster Colony Corp. (NASDAQ:LANC) has seen an increase in hedge fund interest in recent months. Lancaster Colony Corp. (NASDAQ:LANC) was in 14 hedge funds’ portfolios at the end of September. There were 13 hedge funds in our database with Lancaster Colony Corp. (NASDAQ:LANC) holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as LATAM Airlines Group SA (ADR) (NYSE:LFL), Dynegy Inc. (NYSE:DYN), and Cal-Maine Foods Inc (NASDAQ:CALM) to gather more data points.

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In the eyes of most market participants, hedge funds are perceived as underperforming, old investment vehicles of the past. While there are over 8,000 funds with their doors open at the moment, we look at the bigwigs of this club, around 700 funds. Most estimates calculate that this group of people handle the majority of the smart money’s total asset base, and by tailing their highest performing investments, Insider Monkey has discovered a few investment strategies that have historically exceeded Mr. Market. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Now, we’re going to analyze the latest action encompassing Lancaster Colony Corp. (NASDAQ:LANC).

How have hedgies been trading Lancaster Colony Corp. (NASDAQ:LANC)?

Heading into Q4, a total of 14 of the hedge funds tracked by Insider Monkey were bullish in this stock, an increase of 8% from the previous quarter. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

When looking at the hedgies followed by Insider Monkey, Renaissance Technologies holds the most valuable position in Lancaster Colony Corp. (NASDAQ:LANC). Renaissance Technologies has a $71.3 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is Yacktman Asset Management, led by Donald Yacktman, holding a $50.5 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other peers with similar optimism consist of Chuck Royce’s mutual fund, Royce & Associates, Cliff Asness’ AQR Capital Management, and Ken Griffin’s Citadel Investment Group.

With general bullishness amongst the heavyweights, some big names were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in Lancaster Colony Corp. (NASDAQ:LANC). Arrowstreet Capital had $2.2 million invested in the company at the end of the quarter. Michael Platt and William Reeves’ BlueCrest Capital Mgmt. also initiated a $0.8 million position during the quarter. The following funds were also among the new Lancaster investors: Glenn Russell Dubin’s Highbridge Capital Management, and Mike Vranos’ Ellington.

Let’s now review hedge fund activity in other stocks similar to Lancaster Colony Corp. (NASDAQ:LANC). These stocks are LATAM Airlines Group SA (ADR) (NYSE:LFL), Dynegy Inc. (NYSE:DYN), Cal-Maine Foods Inc (NASDAQ:CALM), and International Game Technology (NYSE:IGT). This group of stocks’ market values match Lancaster Colony Corp. (NASDAQ:LANC)’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LFL 4 18566 -1
DYN 40 1175086 -12
CALM 25 352484 3
IGT 20 481138 1

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $507 million. That figure was $160 million in Lancaster Colony Corp. (NASDAQ:LANC)’s case. Dynegy Inc. (NYSE:DYN) is the most popular stock in this table. On the other hand, LATAM Airlines Group SA (ADR) (NYSE:LFL) is the least popular one with only four bullish hedge fund positions. Lancaster Colony Corp. (NASDAQ:LANC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Dynegy Inc. (NYSE:DYN) might be a better candidate to consider a long position in.