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

Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

LendingTree, Inc (NASDAQ:TREE) investors should be aware of an increase in activity from the world’s largest hedge funds 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 32 percentage points since May 2014 through March 12, 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.

Jorge Paulo Lemann

We’re going to take a gander at the fresh hedge fund action surrounding LendingTree, Inc (NASDAQ:TREE).

What does the smart money think about LendingTree, Inc (NASDAQ:TREE)?

At the end of the fourth quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TREE over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

TREE_apr2019

The largest stake in LendingTree, Inc (NASDAQ:TREE) was held by Citadel Investment Group, which reported holding $17.8 million worth of stock at the end of September. It was followed by PDT Partners with a $8.1 million position. Other investors bullish on the company included G2 Investment Partners Management, Ogborne Capital, and D E Shaw.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, initiated the most outsized position in LendingTree, Inc (NASDAQ:TREE). Citadel Investment Group had $17 million invested in the company at the end of the quarter. Mike Ogborne’s Ogborne Capital also initiated a $7.1 million position during the quarter. The following funds were also among the new TREE investors: D. E. Shaw’s D E Shaw, Jorge Paulo Lemann’s 3G Capital, and Brian C. Freckmann’s Lyon Street Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as LendingTree, Inc (NASDAQ:TREE) but similarly valued. These stocks are Bank of Hawaii Corporation (NYSE:BOH), Eldorado Resorts Inc (NASDAQ:ERI), Magnolia Oil & Gas Corporation (NYSE:MGY), and The Boston Beer Company Inc (NYSE:SAM). This group of stocks’ market valuations match TREE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BOH 13 102340 1
ERI 29 492002 5
MGY 32 264461 -5
SAM 19 266550 5
Average 23.25 281338 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $281 million. That figure was $74 million in TREE’s case. Magnolia Oil & Gas Corporation (NYSE:MGY) is the most popular stock in this table. On the other hand Bank of Hawaii Corporation (NYSE:BOH) is the least popular one with only 13 bullish hedge fund positions. LendingTree, Inc (NASDAQ:TREE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on TREE as the stock returned 69.7% and outperformed the market by an even larger margin.

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

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