Was The Smart Money Right About Loading Up On Jefferies Financial Group Inc. (JEF)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Jefferies Financial Group Inc. (NYSE:JEF).

Jefferies Financial Group Inc. (NYSE:JEF) investors should pay attention to an increase in activity from the world’s largest hedge funds recently. Jefferies Financial Group Inc. (NYSE:JEF) was in 37 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 39. There were 30 hedge funds in our database with JEF positions at the end of the first quarter. Our calculations also showed that JEF isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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’ 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 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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to check out the fresh hedge fund action regarding Jefferies Financial Group Inc. (NYSE:JEF).

Hedge fund activity in Jefferies Financial Group Inc. (NYSE:JEF)

At Q2’s end, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in JEF a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, First Pacific Advisors LLC held the most valuable stake in Jefferies Financial Group Inc. (NYSE:JEF), which was worth $280.8 million at the end of the third quarter. On the second spot was Mason Capital Management which amassed $88 million worth of shares. Arrowstreet Capital, Moerus Capital Management, and AQR Capital Management 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 Moerus Capital Management allocated the biggest weight to Jefferies Financial Group Inc. (NYSE:JEF), around 16.72% of its 13F portfolio. Mason Capital Management is also relatively very bullish on the stock, designating 8.47 percent of its 13F equity portfolio to JEF.

As one would reasonably expect, key hedge funds were breaking ground themselves. Mason Capital Management, managed by Kenneth Mario Garschina, created the biggest position in Jefferies Financial Group Inc. (NYSE:JEF). Mason Capital Management had $88 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also made a $15.6 million investment in the stock during the quarter. The following funds were also among the new JEF investors: Dmitry Balyasny’s Balyasny Asset Management, Ken Griffin’s Citadel Investment Group, and Israel Englander’s Millennium Management.

Let’s go over hedge fund activity in other stocks similar to Jefferies Financial Group Inc. (NYSE:JEF). We will take a look at Ashland Global Holdings Inc.. (NYSE:ASH), TerraForm Power Inc (NASDAQ:TERP), Exponent, Inc. (NASDAQ:EXPO), Pilgrim’s Pride Corporation (NASDAQ:PPC), Allison Transmission Holdings Inc (NYSE:ALSN), L Brands Inc (NYSE:LB), and AGCO Corporation (NYSE:AGCO). This group of stocks’ market values resemble JEF’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $503 million. That figure was $586 million in JEF’s case. L Brands Inc (NYSE:LB) is the most popular stock in this table. On the other hand Pilgrim’s Pride Corporation (NASDAQ:PPC) is the least popular one with only 15 bullish hedge fund positions. Jefferies Financial Group Inc. (NYSE:JEF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for JEF is 79.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on JEF as the stock returned 26.5% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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