Hedge Funds Are Betting On NMI Holdings Inc (NMIH)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of NMI Holdings Inc (NASDAQ:NMIH).

Is NMI Holdings Inc (NASDAQ:NMIH) undervalued? Prominent investors are taking an optimistic view. The number of long hedge fund bets increased by 2 recently. Our calculations also showed that NMIH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). NMIH was in 23 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with NMIH holdings at the end of the previous quarter.

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 58 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.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the recent hedge fund action surrounding NMI Holdings Inc (NASDAQ:NMIH).

Hedge fund activity in NMI Holdings Inc (NASDAQ:NMIH)

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in NMIH a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Oaktree Capital Management was the largest shareholder of NMI Holdings Inc (NASDAQ:NMIH), with a stake worth $51.1 million reported as of the end of September. Trailing Oaktree Capital Management was Renaissance Technologies, which amassed a stake valued at $15.2 million. Royce & Associates, Berylson Capital Partners, and AQR Capital Management 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 Berylson Capital Partners allocated the biggest weight to NMI Holdings Inc (NASDAQ:NMIH), around 10.06% of its 13F portfolio. Oaktree Capital Management is also relatively very bullish on the stock, dishing out 1.44 percent of its 13F equity portfolio to NMIH.

As one would reasonably expect, some big names were leading the bulls’ herd. Berylson Capital Partners, managed by James Thomas Berylson, created the most outsized position in NMI Holdings Inc (NASDAQ:NMIH). Berylson Capital Partners had $3.7 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also initiated a $1 million position during the quarter. The other funds with new positions in the stock are Mike Vranos’s Ellington, Steve Cohen’s Point72 Asset Management, and Hoon Kim’s Quantinno Capital.

Let’s go over hedge fund activity in other stocks similar to NMI Holdings Inc (NASDAQ:NMIH). These stocks are Jack in the Box Inc. (NASDAQ:JACK), Central European Media Enterprises Ltd. (NASDAQ:CETV), Astec Industries, Inc. (NASDAQ:ASTE), and Meta Financial Group Inc. (NASDAQ:CASH). All of these stocks’ market caps are closest to NMIH’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $91 million in NMIH’s case. Jack in the Box Inc. (NASDAQ:JACK) is the most popular stock in this table. On the other hand Astec Industries, Inc. (NASDAQ:ASTE) is the least popular one with only 10 bullish hedge fund positions. NMI Holdings Inc (NASDAQ:NMIH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on NMIH as the stock returned 47.7% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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