Was The Smart Money Right About LendingClub Corp (LC)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. The following article will discuss the smart money sentiment towards LendingClub Corp (NYSE:LC).

Hedge fund interest in LendingClub Corp (NYSE:LC) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare LC to other stocks including Criteo SA (NASDAQ:CRTO), Middlesex Water Company (NASDAQ:MSEX), and TG Therapeutics Inc (NASDAQ:TGTX) to get a better sense of its popularity.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s view the latest hedge fund action surrounding LendingClub Corp (NYSE:LC).

Hedge fund activity in LendingClub Corp (NYSE:LC)

At Q4’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in LC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Citadel Investment Group was the largest shareholder of LendingClub Corp (NYSE:LC), with a stake worth $1.1 million reported as of the end of September. Trailing Citadel Investment Group was PDT Partners, which amassed a stake valued at $0.9 million. Citadel Investment Group, AQR Capital Management, and Renaissance Technologies 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 PDT Partners allocated the biggest weight to LendingClub Corp (NYSE:LC), around 0.06% of its 13F portfolio. CSat Investment Advisory is also relatively very bullish on the stock, dishing out 0.04 percent of its 13F equity portfolio to LC.

Since LendingClub Corp (NYSE:LC) has witnessed a decline in interest from the smart money, we can see that there exists a select few money managers who sold off their entire stakes heading into Q4. At the top of the heap, Chase Coleman’s Tiger Global Management LLC said goodbye to the biggest position of the 750 funds followed by Insider Monkey, totaling close to $0.7 million in stock, and Mike Vranos’s Ellington was right behind this move, as the fund said goodbye to about $0.3 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as LendingClub Corp (NYSE:LC) but similarly valued. We will take a look at Criteo SA (NASDAQ:CRTO), Middlesex Water Company (NASDAQ:MSEX), TG Therapeutics Inc (NASDAQ:TGTX), and M/I Homes Inc (NYSE:MHO). This group of stocks’ market caps match LC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRTO 10 114490 -3
MSEX 9 52214 -1
TGTX 22 320444 3
MHO 20 71843 1
Average 15.25 139748 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $3 million in LC’s case. TG Therapeutics Inc (NASDAQ:TGTX) is the most popular stock in this table. On the other hand Middlesex Water Company (NASDAQ:MSEX) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks LendingClub Corp (NYSE:LC) is even less popular than MSEX. Hedge funds dodged a bullet by taking a bearish stance towards LC. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately LC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); LC investors were disappointed as the stock returned -42.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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