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Hedge Funds Dropped The Ball On NVIDIA Corporation (NVDA)?

“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards NVIDIA Corporation (NASDAQ:NVDA) and see how it was affected.

NVIDIA Corporation (NASDAQ:NVDA) has experienced a decrease in hedge fund sentiment of late. NVDA was in 41 hedge funds’ portfolios at the end of December. There were 56 hedge funds in our database with NVDA holdings at the end of the previous quarter. Our calculations also showed that NVDA isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

COATUE MANAGEMENT

We’re going to take a look at the key hedge fund action regarding NVIDIA Corporation (NASDAQ:NVDA).

How have hedgies been trading NVIDIA Corporation (NASDAQ:NVDA)?

At the end of the fourth quarter, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in NVDA over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

NVDA_mar2019

More specifically, Citadel Investment Group was the largest shareholder of NVIDIA Corporation (NASDAQ:NVDA), with a stake worth $557 million reported as of the end of September. Trailing Citadel Investment Group was Coatue Management, which amassed a stake valued at $187.1 million. Generation Investment Management, Renaissance Technologies, and Adage Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as NVIDIA Corporation (NASDAQ:NVDA) has experienced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of fund managers that elected to cut their full holdings in the third quarter. It’s worth mentioning that Stephen Mandel’s Lone Pine Capital cut the largest position of all the hedgies followed by Insider Monkey, worth about $628.2 million in stock, and Gabriel Plotkin’s Melvin Capital Management was right behind this move, as the fund cut about $119.4 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 15 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to NVIDIA Corporation (NASDAQ:NVDA). These stocks are American Express Company (NYSE:AXP), Gilead Sciences, Inc. (NASDAQ:GILD), Starbucks Corporation (NASDAQ:SBUX), and Booking Holdings Inc. (NASDAQ:BKNG). This group of stocks’ market caps are closest to NVDA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AXP 50 17375313 0
GILD 57 2884640 1
SBUX 42 3366976 9
BKNG 84 6437292 16
Average 58.25 7516055 6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 58.25 hedge funds with bullish positions and the average amount invested in these stocks was $7516 million. That figure was $1158 million in NVDA’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand Starbucks Corporation (NASDAQ:SBUX) is the least popular one with only 42 bullish hedge fund positions. Compared to these stocks NVIDIA Corporation (NASDAQ:NVDA) is even less popular than SBUX. Clearly hedge funds turned bearish on NVDA at the wrong time though they were right about other large-cap stocks. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. The 41 hedge funds that bet on NVDA were also proven right as the stock returned 27.3% and outperformed the market as well.

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

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