Were Hedge Funds Right About Flocking Into LendingTree, Inc (TREE) ?

Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell’s pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards LendingTree, Inc (NASDAQ:TREE).

Is LendingTree, Inc (NASDAQ:TREE) a buy here? The best stock pickers are getting more optimistic. The number of long hedge fund bets moved up by 11 lately. Our calculations also showed that TREE isn’t among the 30 most popular stocks among hedge funds.

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 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 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.

Paul Reeder PAR Capital Management

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 review the key hedge fund action surrounding LendingTree, Inc (NASDAQ:TREE).

What have hedge funds been doing with LendingTree, Inc (NASDAQ:TREE)?

At the end of the second quarter, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 65% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in TREE a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

No of Hedge Funds with TREE Positions

Among these funds, Millennium Management held the most valuable stake in LendingTree, Inc (NASDAQ:TREE), which was worth $24.6 million at the end of the second quarter. On the second spot was G2 Investment Partners Management which amassed $23.1 million worth of shares. Moreover, D E Shaw, PAR Capital Management, and Citadel Investment Group were also bullish on LendingTree, Inc (NASDAQ:TREE), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, key money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the most valuable position in LendingTree, Inc (NASDAQ:TREE). Millennium Management had $24.6 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $10.4 million investment in the stock during the quarter. The other funds with brand new TREE positions are Renaissance Technologies, Paul Tudor Jones’s Tudor Investment Corp, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as LendingTree, Inc (NASDAQ:TREE) but similarly valued. These stocks are Cronos Group Inc. (NASDAQ:CRON), Insperity Inc (NYSE:NSP), Ascendis Pharma A/S (NASDAQ:ASND), and New Relic Inc (NYSE:NEWR). This group of stocks’ market values are closest to TREE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRON 8 25378 1
NSP 24 391193 0
ASND 33 2602951 -2
NEWR 29 278012 2
Average 23.5 824384 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $824 million. That figure was $142 million in TREE’s case. Ascendis Pharma A/S (NASDAQ:ASND) is the most popular stock in this table. On the other hand Cronos Group Inc. (NASDAQ:CRON) is the least popular one with only 8 bullish hedge fund positions. LendingTree, Inc (NASDAQ:TREE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TREE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TREE were disappointed as the stock returned -26.1% 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 (view the video below) among hedge funds as many of these stocks already outperformed the market so far this year.
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.