The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Nuverra Environmental Solutions Inc (NYSE:NES) based on those filings.
Nuverra Environmental Solutions Inc (NYSE:NES) shareholders have witnessed a decrease in support from the world’s most elite money managers lately. NES was in 4 hedge funds’ portfolios at the end of the first quarter of 2020. There were 5 hedge funds in our database with NES positions at the end of the previous quarter. Our calculations also showed that NES 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.
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 51 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 leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s check out the fresh hedge fund action regarding Nuverra Environmental Solutions Inc (NYSE:NES).
How are hedge funds trading Nuverra Environmental Solutions Inc (NYSE:NES)?
Heading into the second quarter of 2020, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the fourth quarter of 2019. On the other hand, there were a total of 3 hedge funds with a bullish position in NES a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Jeffrey Gates’s Gates Capital Management has the number one position in Nuverra Environmental Solutions Inc (NYSE:NES), worth close to $9.9 million, corresponding to 0.7% of its total 13F portfolio. Coming in second is GRT Capital Partners, managed by Gregory Fraser, Rudolph Kluiber, and Timothy Krochuk, which holds a $0 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism comprise David P. Cohen’s Minerva Advisors, Renaissance Technologies and . In terms of the portfolio weights assigned to each position Gates Capital Management allocated the biggest weight to Nuverra Environmental Solutions Inc (NYSE:NES), around 0.65% of its 13F portfolio. GRT Capital Partners is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to NES.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified NES as a viable investment and initiated a position in the stock.
Let’s now take a look at hedge fund activity in other stocks similar to Nuverra Environmental Solutions Inc (NYSE:NES). We will take a look at China Pharma Holdings, Inc. (NYSE:CPHI), Medley Management Inc (NYSE:MDLY), Build-A-Bear Workshop, Inc (NYSE:BBW), and BioHiTech Global, Inc. (NASDAQ:BHTG). All of these stocks’ market caps are closest to NES’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 4 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $10 million in NES’s case. Build-A-Bear Workshop, Inc (NYSE:BBW) is the most popular stock in this table. On the other hand BioHiTech Global, Inc. (NASDAQ:BHTG) is the least popular one with only 1 bullish hedge fund positions. Nuverra Environmental Solutions Inc (NYSE:NES) 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 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately NES wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NES investors were disappointed as the stock returned 5% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.