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Did Hedge Funds Drop The Ball On NovoCure Limited (NVCR) ?

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 gone over 730 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 June 28th. In this article we look at what those investors think of NovoCure Limited (NASDAQ:NVCR).

NovoCure Limited (NASDAQ:NVCR) shareholders have witnessed a decrease in enthusiasm from smart money lately. Our calculations also showed that NVCR isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

NVCR_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to analyze the latest hedge fund action regarding NovoCure Limited (NASDAQ:NVCR).

Hedge fund activity in NovoCure Limited (NASDAQ:NVCR)

At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NVCR over the last 16 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Justin John Ferayorni - Tamarack Capital Management

Among these funds, Renaissance Technologies held the most valuable stake in NovoCure Limited (NASDAQ:NVCR), which was worth $130 million at the end of the second quarter. On the second spot was Darsana Capital Partners which amassed $94.8 million worth of shares. Moreover, Farallon Capital, Two Sigma Advisors, and D E Shaw were also bullish on NovoCure Limited (NASDAQ:NVCR), allocating a large percentage of their portfolios to this stock.

Judging by the fact that NovoCure Limited (NASDAQ:NVCR) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few fund managers that decided to sell off their full holdings by the end of the second quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, worth an estimated $4.2 million in stock. Crispin Odey’s fund, Odey Asset Management Group, also sold off its stock, about $2.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks similar to NovoCure Limited (NASDAQ:NVCR). We will take a look at Hanesbrands Inc. (NYSE:HBI), CDK Global Inc (NASDAQ:CDK), Enable Midstream Partners LP (NYSE:ENBL), and Texas Pacific Land Trust (NYSE:TPL). This group of stocks’ market caps are closest to NVCR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HBI 22 402748 -8
CDK 29 432354 6
ENBL 7 40315 2
TPL 16 1515971 5
Average 18.5 597847 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $598 million. That figure was $427 million in NVCR’s case. CDK Global Inc (NASDAQ:CDK) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 7 bullish hedge fund positions. NovoCure Limited (NASDAQ:NVCR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on NVCR as the stock returned 18.3% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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