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Hedge Funds Done Buying Netfin Acquisition Corp. (NFIN)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Netfin Acquisition Corp. (NASDAQ:NFIN) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Netfin Acquisition Corp. (NASDAQ:NFIN) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds’ portfolios at the end of March. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as America First Multifamily Investors, L.P. (NASDAQ:ATAX), FuelCell Energy, Inc. (NASDAQ:FCEL), and Quotient Limited (NASDAQ:QTNT) to gather more data points. Our calculations also showed that NFIN 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.

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 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 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 Altman Owl Creek

Jeffrey Altman of Owl Creek Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the latest hedge fund action surrounding Netfin Acquisition Corp. (NASDAQ:NFIN).

How are hedge funds trading Netfin Acquisition Corp. (NASDAQ:NFIN)?

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NFIN over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Paul Glazer’s Glazer Capital has the number one position in Netfin Acquisition Corp. (NASDAQ:NFIN), worth close to $11.2 million, accounting for 0.7% of its total 13F portfolio. Sitting at the No. 2 spot is Jeffrey Tannenbaum of Fir Tree, with a $10.1 million position; 0.9% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism encompass Alec Litowitz and Ross Laser’s Magnetar Capital, Sander Gerber’s Hudson Bay Capital Management and Jeffrey Altman’s Owl Creek Asset Management. In terms of the portfolio weights assigned to each position Fir Tree allocated the biggest weight to Netfin Acquisition Corp. (NASDAQ:NFIN), around 0.89% of its 13F portfolio. Glazer Capital is also relatively very bullish on the stock, earmarking 0.75 percent of its 13F equity portfolio to NFIN.

Since Netfin Acquisition Corp. (NASDAQ:NFIN) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few hedge funds that decided to sell off their positions entirely in the first quarter. Intriguingly, Jeffrey Altman’s Owl Creek Asset Management dumped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $5.1 million in stock, and Jeffrey Tannenbaum’s Fir Tree was right behind this move, as the fund cut about $3.8 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Netfin Acquisition Corp. (NASDAQ:NFIN) but similarly valued. These stocks are America First Multifamily Investors, L.P. (NASDAQ:ATAX), FuelCell Energy, Inc. (NASDAQ:FCEL), Quotient Limited (NASDAQ:QTNT), and Kimbell Royalty Partners, LP (NYSE:KRP). This group of stocks’ market caps are similar to NFIN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ATAX 1 240 -1
FCEL 6 3006 4
QTNT 20 144956 -2
KRP 9 10619 3
Average 9 39705 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $56 million in NFIN’s case. Quotient Limited (NASDAQ:QTNT) is the most popular stock in this table. On the other hand America First Multifamily Investors, L.P. (NASDAQ:ATAX) is the least popular one with only 1 bullish hedge fund positions. Netfin Acquisition Corp. (NASDAQ:NFIN) 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately NFIN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NFIN were disappointed as the stock returned 9.2% 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.