Did Hedge Funds Make The Right Call On Norwegian Cruise Line Holdings Ltd (NCLH) ?

The latest 13F reporting period has come and gone, and 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. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtNorwegian Cruise Line Holdings Ltd (NYSE:NCLH) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) investors should be aware of a decrease in enthusiasm from smart money lately. NCLH was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 38 hedge funds in our database with NCLH positions at the end of the previous quarter. Our calculations also showed that NCLH 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Glen Kacher of Light Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s review the fresh hedge fund action encompassing Norwegian Cruise Line Holdings Ltd (NYSE:NCLH).

How are hedge funds trading Norwegian Cruise Line Holdings Ltd (NYSE:NCLH)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -47% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NCLH over the last 18 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

The largest stake in Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) was held by Light Street Capital, which reported holding $31 million worth of stock at the end of September. It was followed by AQR Capital Management with a $23.1 million position. Other investors bullish on the company included Platinum Asset Management, Renaissance Technologies, and Ariel Investments. In terms of the portfolio weights assigned to each position Light Street Capital allocated the biggest weight to Norwegian Cruise Line Holdings Ltd (NYSE:NCLH), around 1.63% of its 13F portfolio. Platinum Asset Management is also relatively very bullish on the stock, setting aside 0.42 percent of its 13F equity portfolio to NCLH.

Seeing as Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of funds that decided to sell off their entire stakes heading into Q4. It’s worth mentioning that Thomas E. Claugus’s GMT Capital cut the biggest position of all the hedgies followed by Insider Monkey, comprising an estimated $64.3 million in stock, and Richard Merage’s MIG Capital was right behind this move, as the fund cut about $52.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 18 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) but similarly valued. We will take a look at Ternium S.A. (NYSE:TX), Colfax Corporation (NYSE:CFX), United Bankshares, Inc. (NASDAQ:UBSI), and Taro Pharmaceutical Industries Ltd. (NYSE:TARO). This group of stocks’ market caps resemble NCLH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TX 8 62086 -3
CFX 32 421377 -11
UBSI 13 46714 -5
TARO 9 64708 -3
Average 15.5 148721 -5.5

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 $149 million. That figure was $114 million in NCLH’s case. Colfax Corporation (NYSE:CFX) is the most popular stock in this table. On the other hand Ternium S.A. (NYSE:TX) is the least popular one with only 8 bullish hedge fund positions. Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately NCLH wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NCLH were disappointed as the stock returned 22.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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