While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Navient Corp (NASDAQ:NAVI) and see how the stock performed in comparison to hedge funds’ consensus picks.
Is Navient Corp (NASDAQ:NAVI) a good stock to buy now? Hedge funds are turning bullish. The number of long hedge fund positions increased by 4 in recent months. Our calculations also showed that NAVI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s review the latest hedge fund action surrounding Navient Corp (NASDAQ:NAVI).
Hedge fund activity in Navient Corp (NASDAQ:NAVI)
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NAVI over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors has the largest position in Navient Corp (NASDAQ:NAVI), worth close to $272.3 million, amounting to 5.9% of its total 13F portfolio. The second largest stake is held by Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $42 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions encompass David E. Shaw’s D E Shaw, Leon Cooperman’s Omega Advisors and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Canyon Capital Advisors allocated the biggest weight to Navient Corp (NASDAQ:NAVI), around 5.88% of its 13F portfolio. Omega Advisors is also relatively very bullish on the stock, dishing out 1.32 percent of its 13F equity portfolio to NAVI.
As aggregate interest increased, key hedge funds have jumped into Navient Corp (NASDAQ:NAVI) headfirst. Interval Partners, managed by Gregg Moskowitz, initiated the most outsized position in Navient Corp (NASDAQ:NAVI). Interval Partners had $7.7 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $5.6 million position during the quarter. The other funds with new positions in the stock are Lee Ainslie’s Maverick Capital, Paul Marshall and Ian Wace’s Marshall Wace, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Navient Corp (NASDAQ:NAVI) but similarly valued. We will take a look at Apollo Commercial Real Est. Finance Inc (NYSE:ARI), Washington Federal Inc. (NASDAQ:WAFD), Colony Capital Inc (NYSE:CLNY), and Black Stone Minerals LP (NYSE:BSM). All of these stocks’ market caps resemble NAVI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARI | 9 | 55577 | -4 |
| WAFD | 14 | 74488 | 5 |
| CLNY | 20 | 420255 | 4 |
| BSM | 7 | 7850 | 0 |
| Average | 12.5 | 139543 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $448 million in NAVI’s case. Colony Capital Inc (NYSE:CLNY) is the most popular stock in this table. On the other hand Black Stone Minerals LP (NYSE:BSM) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Navient Corp (NASDAQ:NAVI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on NAVI as the stock returned 65.7% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
