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Were Hedge Funds Right About Dumping Luxfer Holdings PLC (LXFR)?

We can judge whether Luxfer Holdings PLC (NYSE:LXFR) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Is Luxfer Holdings PLC (NYSE:LXFR) a bargain? The smart money is in a bearish mood. The number of long hedge fund positions decreased by 5 lately. Our calculations also showed that LXFR isn’t among the 30 most popular stocks among hedge funds (see the video below). LXFR was in 9 hedge funds’ portfolios at the end of June. There were 14 hedge funds in our database with LXFR positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

LXFR_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s analyze the fresh hedge fund action regarding Luxfer Holdings PLC (NYSE:LXFR).

Hedge fund activity in Luxfer Holdings PLC (NYSE:LXFR)

At Q2’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -36% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LXFR over the last 16 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.

Richard Driehaus

Among these funds, Nantahala Capital Management held the most valuable stake in Luxfer Holdings PLC (NYSE:LXFR), which was worth $63.8 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $19.9 million worth of shares. Moreover, Ancora Advisors, Royce & Associates, and Driehaus Capital were also bullish on Luxfer Holdings PLC (NYSE:LXFR), allocating a large percentage of their portfolios to this stock.

Since Luxfer Holdings PLC (NYSE:LXFR) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there exists a select few fund managers that decided to sell off their positions entirely by the end of the second quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the biggest position of the 750 funds followed by Insider Monkey, valued at about $1.7 million in stock. Israel Englander’s fund, Millennium Management, also dumped its stock, about $1.5 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 5 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Luxfer Holdings PLC (NYSE:LXFR). We will take a look at Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH), Extraction Oil & Gas, Inc. (NASDAQ:XOG), Keane Group, Inc. (NYSE:FRAC), and Genesco Inc. (NYSE:GCO). All of these stocks’ market caps resemble LXFR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RUTH 16 54849 1
XOG 17 91772 -3
FRAC 21 341424 -7
GCO 17 55539 -2
Average 17.75 135896 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $107 million in LXFR’s case. Keane Group, Inc. (NYSE:FRAC) is the most popular stock in this table. On the other hand Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Luxfer Holdings PLC (NYSE:LXFR) is even less popular than RUTH. Hedge funds dodged a bullet by taking a bearish stance towards LXFR. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately LXFR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); LXFR investors were disappointed as the stock returned -36.1% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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

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