Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Lazard Ltd (NYSE:LAZ) to find out whether there were any major changes in hedge funds' views.
Is LAZ a good stock to buy now? Investors who are in the know were taking an optimistic view. The number of bullish hedge fund bets rose by 1 recently. Lazard Ltd (NYSE:LAZ) was in 19 hedge funds' portfolios at the end of September. The all time high for this statistic is 22. Our calculations also showed that LAZ isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 18 hedge funds in our database with LAZ holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
John Rogers Ariel Investments
John Rogers of Ariel Investments
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let's take a look at the fresh hedge fund action encompassing Lazard Ltd (NYSE:LAZ).
Do Hedge Funds Think LAZ Is A Good Stock To Buy Now?
At the end of September, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the second quarter of 2020. On the other hand, there were a total of 15 hedge funds with a bullish position in LAZ a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Southeastern Asset Management held the most valuable stake in Lazard Ltd (NYSE:LAZ), which was worth $232.7 million at the end of the third quarter. On the second spot was Ariel Investments which amassed $181.8 million worth of shares. Fisher Asset Management, Royce & Associates, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Yost Capital Management allocated the biggest weight to Lazard Ltd (NYSE:LAZ), around 10.63% of its 13F portfolio. Southeastern Asset Management is also relatively very bullish on the stock, setting aside 5.99 percent of its 13F equity portfolio to LAZ.
As one would reasonably expect, key money managers were breaking ground themselves. Gillson Capital, managed by Daniel Johnson, established the largest position in Lazard Ltd (NYSE:LAZ). Gillson Capital had $5.5 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also made a $1.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Donald Sussman's Paloma Partners and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.
Let's go over hedge fund activity in other stocks similar to Lazard Ltd (NYSE:LAZ). These stocks are Stifel Financial Corp. (NYSE:SF), Brixmor Property Group Inc (NYSE:BRX), Proto Labs Inc (NYSE:PRLB), Inspire Medical Systems, Inc. (NYSE:INSP), UFP Industries, Inc. (NASDAQ:UFPI), Semtech Corporation (NASDAQ:SMTC), and Alamos Gold Inc (NYSE:AGI). This group of stocks' market caps are closest to LAZ's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SF,18,170037,-3 BRX,18,43439,-6 PRLB,16,21040,-1 INSP,25,462980,1 UFPI,20,93473,2 SMTC,21,151214,-4 AGI,15,403593,-1 Average,19,192254,-1.7 [/table]
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $192 million. That figure was $604 million in LAZ's case. Inspire Medical Systems, Inc. (NYSE:INSP) is the most popular stock in this table. On the other hand Alamos Gold Inc (NYSE:AGI) is the least popular one with only 15 bullish hedge fund positions. Lazard Ltd (NYSE:LAZ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LAZ is 51.9. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on LAZ as the stock returned 25.1% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
