What Do Hedge Funds Think of Legg Mason, Inc. (LM)?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Micron and Anadarko Petroleum, have not done well during the last 12 months ending in October due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average. The top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% during the last four quarters ending in October and sixty three percent of these 30 stocks outperformed the market. S&P 500 Index returned only 5.2% during the same period and less than 49% of its constituents managed to beat this return. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Legg Mason, Inc. (NYSE:LM) from the perspective of those elite funds.

Is Legg Mason, Inc. (NYSE:LM) a healthy stock for your portfolio? The smart money is taking a pessimistic view. The number of bullish hedge fund bets fell by 6 lately. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Align Technology, Inc. (NASDAQ:ALGN), Ares Capital Corporation (NASDAQ:ARCC), and Servicemaster Global Holdings Inc (NYSE:SERV) to gather more data points.

With all of this in mind, let’s check out the latest action encompassing Legg Mason, Inc. (NYSE:LM).

What does the smart money think about Legg Mason, Inc. (NYSE:LM)?

At Q3’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Trian Partners, managed by Nelson Peltz, holds the biggest position in Legg Mason, Inc. (NYSE:LM). Trian Partners has a $459.4 million position in the stock, comprising 3.9% of its 13F portfolio. On Trian Partners’s heels is GAMCO Investors, led by Mario Gabelli, holding a $169.3 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions encompass Andreas Halvorsen’s Viking Global, Israel Englander’s Millennium Management and Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC.

Because Legg Mason, Inc. (NYSE:LM) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few funds that elected to cut their positions entirely by the end of the third quarter. Intriguingly, Millennium Management Subsidiary’s Blue Arrow Capital Management said goodbye to the biggest position of all the hedgies tracked by Insider Monkey, worth about $10.7 million in stock, and Peter Muller’s PDT Partners was right behind this move, as the fund said goodbye to about $6.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 6 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to Legg Mason, Inc. (NYSE:LM). We will take a look at Align Technology, Inc. (NASDAQ:ALGN), Ares Capital Corporation (NASDAQ:ARCC), Servicemaster Global Holdings Inc (NYSE:SERV), and Gentex Corporation (NASDAQ:GNTX). This group of stocks’ market values are closest to LM’s market value.

As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $346 million. That figure was $1,240 million in LM’s case. Servicemaster Global Holdings Inc (NYSE:SERV) is the most popular stock in this table. On the other hand Ares Capital Corporation (NASDAQ:ARCC) is the least popular one with only 23 bullish hedge fund positions. Legg Mason, Inc. (NYSE:LM) 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. In this regard SERV might be a better candidate to consider a long position.