Were Hedge Funds Right About LPL Financial Holdings Inc (LPLA)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards LPL Financial Holdings Inc (NASDAQ:LPLA) and determine whether hedge funds skillfully traded this stock.

Is LPL Financial Holdings Inc (NASDAQ:LPLA) a healthy stock for your portfolio? The smart money was cutting their exposure. The number of bullish hedge fund positions dropped by 11 in recent months. LPL Financial Holdings Inc (NASDAQ:LPLA) was in 37 hedge funds’ portfolios at the end of September. The all time high for this statistic is 48. Our calculations also showed that LPLA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. With all of this in mind let’s take a look at the recent hedge fund action encompassing LPL Financial Holdings Inc (NASDAQ:LPLA).

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

At the end of September, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the second quarter of 2021. By comparison, 37 hedge funds held shares or bullish call options in LPLA a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Robert Pohly’s Samlyn Capital has the most valuable position in LPL Financial Holdings Inc (NASDAQ:LPLA), worth close to $407.7 million, amounting to 5.5% of its total 13F portfolio. On Samlyn Capital’s heels is Southpoint Capital Advisors, led by John Smith Clark, holding a $235.1 million position; the fund has 5% of its 13F portfolio invested in the stock. Remaining peers with similar optimism comprise Parag Vora’s HG Vora Capital Management, James Parsons’s Junto Capital Management and Israel Englander’s Millennium 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 14.54% of its 13F portfolio. Samlyn Capital is also relatively very bullish on the stock, setting aside 5.46 percent of its 13F equity portfolio to LPLA.

Because LPL Financial Holdings Inc (NASDAQ:LPLA) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedgies that slashed their entire stakes by the end of the third quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the biggest stake of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $52.1 million in call options. Ira Unschuld’s fund, Brant Point Investment Management, also sold off its call options, about $9.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 11 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to LPL Financial Holdings Inc (NASDAQ:LPLA). These stocks are Jones Lang LaSalle Inc (NYSE:JLL), Iron Mountain Incorporated (NYSE:IRM), Enel Americas S.A. (NYSE:ENIA), Tenaris S.A. (NYSE:TS), Opendoor Technologies Inc. (NASDAQ:OPEN), Fortune Brands Home & Security Inc (NYSE:FBHS), and American Homes 4 Rent (NYSE:AMH). This group of stocks’ market valuations resemble LPLA’s market valuation.

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As you can see these stocks had an average of 23.6 hedge funds with bullish positions and the average amount invested in these stocks was $752 million. That figure was $1690 million in LPLA’s case. Opendoor Technologies Inc. (NASDAQ:OPEN) is the most popular stock in this table. On the other hand Enel Americas S.A. (NYSE:ENIA) is the least popular one with only 9 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 67.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 29.6% in 2021 and managed to beat the market by another 3.6 percentage points. Hedge funds were also right about betting on LPLA as the stock returned 10.1% since the end of September (through 1/31) 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.