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

The market has been volatile in the fourth quarter as the Federal Reserve continued its rate hikes to normalize the interest rates. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, and the funds’ movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of NovoCure Limited (NASDAQ:NVCR) and find out how it is affected by hedge funds’ moves.

NovoCure Limited (NASDAQ:NVCR) investors should pay attention to a decrease in enthusiasm from smart money recently. NVCR was in 17 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 20 hedge funds in our database with NVCR holdings at the end of the previous quarter. Our calculations also showed that nvcr isn’t among the 30 most popular stocks among hedge funds.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 32 percentage points since May 2014 through March 12, 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.


Let’s check out the latest hedge fund action surrounding NovoCure Limited (NASDAQ:NVCR).

How have hedgies been trading NovoCure Limited (NASDAQ:NVCR)?

Heading into the first quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NVCR over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds With NVCR Positions

More specifically, Darsana Capital Partners was the largest shareholder of NovoCure Limited (NASDAQ:NVCR), with a stake worth $72 million reported as of the end of September. Trailing Darsana Capital Partners was Farallon Capital, which amassed a stake valued at $41.9 million. Renaissance Technologies, Tamarack Capital Management, and Stepstone Group were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that NovoCure Limited (NASDAQ:NVCR) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of funds who were dropping their full holdings last quarter. At the top of the heap, Mike Masters’s Masters Capital Management sold off the largest stake of the 700 funds tracked by Insider Monkey, valued at an estimated $10.5 million in stock. Richard Driehaus’s fund, Driehaus Capital, also cut its stock, about $8.2 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to NovoCure Limited (NASDAQ:NVCR). We will take a look at Cantel Medical Corp. (NYSE:CMD), AMC Networks Inc (NASDAQ:AMCX), BankUnited, Inc. (NYSE:BKU), and Generac Holdings Inc. (NYSE:GNRC). This group of stocks’ market values are closest to NVCR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CMD 13 182274 -10
AMCX 19 172648 -2
BKU 21 459136 -6
GNRC 21 111917 -3
Average 18.5 231494 -5.25

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 $231 million. That figure was $219 million in NVCR’s case. BankUnited, Inc. (NYSE:BKU) is the most popular stock in this table. On the other hand Cantel Medical Corp. (NYSE:CMD) is the least popular one with only 13 bullish hedge fund positions. NovoCure Limited (NASDAQ:NVCR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on NVCR as the stock returned 28.9% and outperformed the market by an even larger margin.

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