Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Nelnet, Inc. (NYSE:NNI) investors should be aware of a decrease in support from the world’s most elite money managers in recent months. NNI was in 13 hedge funds’ portfolios at the end of June. There were 15 hedge funds in our database with NNI holdings at the end of the previous quarter. Our calculations also showed that NNI isn’t among the 30 most popular stocks among hedge funds (view the video below).
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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 take a peek at the key hedge fund action encompassing Nelnet, Inc. (NYSE:NNI).
Hedge fund activity in Nelnet, Inc. (NYSE:NNI)
At Q2’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in NNI a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Magnolia Capital Fund, managed by Adam Peterson, holds the largest position in Nelnet, Inc. (NYSE:NNI). Magnolia Capital Fund has a $66.9 million position in the stock, comprising 7.3% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $6.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions include Thomas G. Maheras’s Tegean Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Cliff Asness’s AQR Capital Management.
Seeing as Nelnet, Inc. (NYSE:NNI) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of money managers that slashed their entire stakes last quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising about $0.8 million in stock. David Harding’s fund, Winton Capital Management, also said goodbye to its stock, about $0.5 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Nelnet, Inc. (NYSE:NNI) but similarly valued. We will take a look at Alamos Gold Inc (NYSE:AGI), Sunrun Inc (NASDAQ:RUN), Cactus, Inc. (NYSE:WHD), and Evertec Inc (NYSE:EVTC). This group of stocks’ market values are similar to NNI’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $296 million. That figure was $94 million in NNI’s case. Cactus, Inc. (NYSE:WHD) is the most popular stock in this table. On the other hand Alamos Gold Inc (NYSE:AGI) is the least popular one with only 12 bullish hedge fund positions. Nelnet, Inc. (NYSE:NNI) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on NNI as the stock returned 7.7% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.