Was The Smart Money Right About Piling Into LPL Financial (LPLA)?

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards LPL Financial Holdings Inc (NASDAQ:LPLA).

LPL Financial Holdings Inc (NASDAQ:LPLA) has seen an increase in support from the world’s most elite money managers of late. LPL Financial Holdings Inc (NASDAQ:LPLA) was in 43 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 43. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 37 hedge funds in our database with LPLA positions at the end of the third quarter. Our calculations also showed that LPLA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Parag Vora - HG Vora Capital

Parag Vora of HG Vora Capital Management

At Insider Monkey we leave no stone unturned when looking for 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 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s view the key hedge fund action encompassing LPL Financial Holdings Inc (NASDAQ:LPLA).

Do Hedge Funds Think LPLA Is A Good Stock To Buy Now?

At Q4’s end, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LPLA over the last 22 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in LPL Financial Holdings Inc (NASDAQ:LPLA) was held by Samlyn Capital, which reported holding $326.1 million worth of stock at the end of December. It was followed by Southpoint Capital Advisors with a $182.4 million position. Other investors bullish on the company included First Pacific Advisors LLC, Junto Capital Management, and HG Vora Capital Management. In terms of the portfolio weights assigned to each position Engle Capital allocated the biggest weight to LPL Financial Holdings Inc (NASDAQ:LPLA), around 10.64% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, designating 6.47 percent of its 13F equity portfolio to LPLA.

Now, specific money managers were leading the bulls’ herd. Azora Capital, managed by Ravi Chopra, created the largest position in LPL Financial Holdings Inc (NASDAQ:LPLA). Azora Capital had $71.4 million invested in the company at the end of the quarter. Zachary Miller’s Parian Global Management also made a $13.5 million investment in the stock during the quarter. The other funds with brand new LPLA positions are Ryan Caldwell’s Chiron Investment Management, Daniel Johnson’s Gillson Capital, and Renaissance Technologies.

Let’s now review hedge fund activity in other stocks similar to LPL Financial Holdings Inc (NASDAQ:LPLA). We will take a look at Athene Holding Ltd. (NYSE:ATH), Tata Motors Limited (NYSE:TTM), Vereit Inc (NYSE:VER), Omega Healthcare Investors Inc (NYSE:OHI), Encompass Health Corporation (NYSE:EHC), Companhia Siderurgica Nacional (NYSE:SID), and Owens Corning (NYSE:OC). This group of stocks’ market caps match LPLA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ATH 36 1146379 5
TTM 7 40441 -3
VER 23 683956 5
OHI 15 101266 -4
EHC 35 758170 3
SID 9 43048 2
OC 38 377647 -5
Average 23.3 450130 0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $450 million. That figure was $1162 million in LPLA’s case. Owens Corning (NYSE:OC) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks LPL Financial Holdings Inc (NASDAQ:LPLA) is more popular among hedge funds. Our overall hedge fund sentiment score for LPLA is 90. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks returned 13.6% in 2021 through April 30th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on LPLA as the stock returned 50.6% since the end of December (through 4/30) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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