We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Nucor Corporation (NYSE:NUE) and determine whether hedge funds skillfully traded this stock.
Hedge fund interest in Nucor Corporation (NYSE:NUE) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that NUE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). 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 FactSet Research Systems Inc. (NYSE:FDS), Seagate Technology plc (NASDAQ:STX), and Masimo Corporation (NASDAQ:MASI) to gather more data points. Our calculations also showed that NUE isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
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 S&P 500 ETFs by more than 56 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. 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s check out the recent hedge fund action surrounding Nucor Corporation (NYSE:NUE).
How have hedgies been trading Nucor Corporation (NYSE:NUE)?
At Q2’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NUE over the last 20 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in Nucor Corporation (NYSE:NUE) was held by Citadel Investment Group, which reported holding $33.4 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $25.6 million position. Other investors bullish on the company included D E Shaw, Millennium Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Arjuna Capital allocated the biggest weight to Nucor Corporation (NYSE:NUE), around 1.1% of its 13F portfolio. Elkhorn Partners is also relatively very bullish on the stock, earmarking 0.25 percent of its 13F equity portfolio to NUE.
Because Nucor Corporation (NYSE:NUE) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there exists a select few money managers that slashed their full holdings by the end of the second quarter. Interestingly, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors dumped the biggest stake of the 750 funds tracked by Insider Monkey, totaling close to $1.6 million in stock, and Lee Ainslie’s Maverick Capital was right behind this move, as the fund dumped about $0.5 million worth. These moves 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 Nucor Corporation (NYSE:NUE) but similarly valued. These stocks are FactSet Research Systems Inc. (NYSE:FDS), Seagate Technology plc (NASDAQ:STX), Masimo Corporation (NASDAQ:MASI), AngloGold Ashanti Limited (NYSE:AU), Godaddy Inc (NYSE:GDDY), Cheniere Energy, Inc. (NYSE:LNG), and Atmos Energy Corporation (NYSE:ATO). All of these stocks’ market caps are closest to NUE’s market cap.
|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 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $1143 million. That figure was $116 million in NUE’s case. Godaddy Inc (NYSE:GDDY) is the most popular stock in this table. On the other hand AngloGold Ashanti Limited (NYSE:AU) is the least popular one with only 16 bullish hedge fund positions. Nucor Corporation (NYSE:NUE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NUE is 41.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. A small number of hedge funds were also right about betting on NUE as the stock returned 9.3% since the end of June (through September 25th) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.