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Hedge Funds Are Warming Up To NCR Corporation (NCR)

Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards NCR Corporation (NYSE:NCR) changed during the first quarter.

NCR Corporation (NYSE:NCR) was in 31 hedge funds’ portfolios at the end of the third quarter of 2019. NCR investors should be aware of an increase in hedge fund sentiment lately. There were 24 hedge funds in our database with NCR holdings at the end of the previous quarter. Our calculations also showed that NCR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 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.

Jeffrey Talpins of Element Capital

Jeffrey Talpins of Element Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s view the fresh hedge fund action surrounding NCR Corporation (NYSE:NCR).

How have hedgies been trading NCR Corporation (NYSE:NCR)?

At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NCR over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

NCR_dec2019

Among these funds, Nitorum Capital held the most valuable stake in NCR Corporation (NYSE:NCR), which was worth $54.6 million at the end of the third quarter. On the second spot was D E Shaw which amassed $43.3 million worth of shares. Engaged Capital, GLG Partners, and Marshall Wace were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Nishkama Capital allocated the biggest weight to NCR Corporation (NYSE:NCR), around 20.91% of its portfolio. Clearline Capital is also relatively very bullish on the stock, designating 4.74 percent of its 13F equity portfolio to NCR.

As industrywide interest jumped, specific money managers have jumped into NCR Corporation (NYSE:NCR) headfirst. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the largest position in NCR Corporation (NYSE:NCR). Marshall Wace had $20.8 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital also made a $8.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Josh Donfeld and David Rogers’s Castle Hook Partners, Jeffrey Talpins’s Element Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s now review hedge fund activity in other stocks similar to NCR Corporation (NYSE:NCR). We will take a look at Enstar Group Ltd. (NASDAQ:ESGR), Gold Fields Limited (NYSE:GFI), Azul S.A. (NYSE:AZUL), and New Jersey Resources Corp (NYSE:NJR). This group of stocks’ market values resemble NCR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ESGR 12 415383 2
GFI 17 282757 3
AZUL 12 134406 -1
NJR 14 82886 2
Average 13.75 228858 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $229 million. That figure was $285 million in NCR’s case. Gold Fields Limited (NYSE:GFI) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks NCR Corporation (NYSE:NCR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NCR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NCR were disappointed as the stock returned 4% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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