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 Lemonade, Inc. (NYSE:LMND) to find out whether there were any major changes in hedge funds’ views.
Is LMND a good stock to buy? Money managers were turning bullish. The number of bullish hedge fund bets moved up by 3 lately. Lemonade, Inc. (NYSE:LMND) was in 16 hedge funds’ portfolios at the end of March. The all time high for this statistic is 15. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that LMND isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Philippe Laffont of Coatue Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. With all of this in mind we’re going to take a look at the recent hedge fund action regarding Lemonade, Inc. (NYSE:LMND).
Do Hedge Funds Think LMND Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from the fourth quarter of 2020. On the other hand, there were a total of 0 hedge funds with a bullish position in LMND a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Coatue Management was the largest shareholder of Lemonade, Inc. (NYSE:LMND), with a stake worth $54.2 million reported as of the end of March. Trailing Coatue Management was Zevenbergen Capital Investments, which amassed a stake valued at $51.4 million. Citadel Investment Group, OZ Management, and Citadel Investment Group 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 Zevenbergen Capital Investments allocated the biggest weight to Lemonade, Inc. (NYSE:LMND), around 0.98% of its 13F portfolio. Coatue Management is also relatively very bullish on the stock, setting aside 0.3 percent of its 13F equity portfolio to LMND.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Coatue Management, managed by Philippe Laffont, established the most valuable position in Lemonade, Inc. (NYSE:LMND). Coatue Management had $54.2 million invested in the company at the end of the quarter. Daniel S. Och’s OZ Management also made a $18 million investment in the stock during the quarter. The other funds with brand new LMND positions are Ken Griffin’s Citadel Investment Group, Daniel S. Och’s OZ Management, and D. E. Shaw’s D E Shaw.
Let’s check out hedge fund activity in other stocks similar to Lemonade, Inc. (NYSE:LMND). These stocks are SunPower Corporation (NASDAQ:SPWR), Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), National Instruments Corporation (NASDAQ:NATI), Eastgroup Properties Inc (NYSE:EGP), Unum Group (NYSE:UNM), PLDT Inc. (NYSE:PHI), and Eagle Materials, Inc. (NYSE:EXP). This group of stocks’ market caps are closest to LMND’s market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPWR,18,182419,-6 OLLI,24,194324,3 NATI,21,248825,3 EGP,13,82942,0 UNM,33,283684,8 PHI,4,86933,0 EXP,35,348037,-2 Average,21.1,203881,0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $160 million in LMND’s case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 4 bullish hedge fund positions. Lemonade, Inc. (NYSE:LMND) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LMND is 57.4. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately LMND wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); LMND investors were disappointed as the stock returned -7.8% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.