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Were Hedge Funds Right About National Research Corporation (NRC)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in National Research Corporation (NASDAQ:NRC)? The smart money sentiment can provide an answer to this question.

Is National Research Corporation (NASDAQ:NRC) the right pick for your portfolio? The best stock pickers are becoming less confident. The number of bullish hedge fund positions were cut by 1 recently. Our calculations also showed that NRC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 41 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.

MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the latest hedge fund action regarding National Research Corporation (NASDAQ:NRC).

What have hedge funds been doing with National Research Corporation (NASDAQ:NRC)?

At the end of the fourth quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. On the other hand, there were a total of 5 hedge funds with a bullish position in NRC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in National Research Corporation (NASDAQ:NRC), which was worth $37.6 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $11.8 million worth of shares. AQR Capital Management, Citadel Investment Group, and D E Shaw 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 Zebra Capital Management allocated the biggest weight to National Research Corporation (NASDAQ:NRC), around 0.32% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.11 percent of its 13F equity portfolio to NRC.

Due to the fact that National Research Corporation (NASDAQ:NRC) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there were a few hedge funds that decided to sell off their positions entirely by the end of the third quarter. At the top of the heap, Julian Allen’s Spitfire Capital dropped the largest position of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $2.3 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund said goodbye to about $0.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to National Research Corporation (NASDAQ:NRC). We will take a look at Kite Realty Group Trust (NYSE:KRG), BP Midstream Partners LP (NYSE:BPMP), Talos Energy, Inc. (NYSE:TALO), and Sunrun Inc (NASDAQ:RUN). This group of stocks’ market values are closest to NRC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KRG 13 81500 2
BPMP 6 27556 0
TALO 14 62279 -2
RUN 23 470192 5
Average 14 160382 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $160 million. That figure was $54 million in NRC’s case. Sunrun Inc (NASDAQ:RUN) is the most popular stock in this table. On the other hand BP Midstream Partners LP (NYSE:BPMP) is the least popular one with only 6 bullish hedge fund positions. National Research Corporation (NASDAQ:NRC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately NRC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NRC investors were disappointed as the stock returned -28.2% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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