Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
NovaGold Resources Inc. (NYSE:NG) was in 19 hedge funds’ portfolios at the end of the fourth quarter of 2018. NG investors should be aware of an increase in enthusiasm from smart money lately. There were 13 hedge funds in our database with NG holdings at the end of the previous quarter. Our calculations also showed that NG isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.
Let’s check out the key hedge fund action surrounding NovaGold Resources Inc. (NYSE:NG).
What does the smart money think about NovaGold Resources Inc. (NYSE:NG)?
At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 46% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NG over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Paulson & Co was the largest shareholder of NovaGold Resources Inc. (NYSE:NG), with a stake worth $86.9 million reported as of the end of December. Trailing Paulson & Co was Empyrean Capital Partners, which amassed a stake valued at $17.8 million. MSDC Management, Kopernik Global Investors, and Levin Capital Strategies were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, some big names were breaking ground themselves. Moore Global Investments, managed by Louis Bacon, assembled the biggest position in NovaGold Resources Inc. (NYSE:NG). Moore Global Investments had $7.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $5.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Robert Polak’s Anchor Bolt Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Israel Englander’s Millennium Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as NovaGold Resources Inc. (NYSE:NG) but similarly valued. We will take a look at Virtusa Corporation (NASDAQ:VRTU), Warrior Met Coal, Inc. (NYSE:HCC), The Liberty Braves Group (NASDAQ:BATRA), and Tri Continental Corporation (NYSE:TY). All of these stocks’ market caps are similar to NG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VRTU | 14 | 57508 | -2 |
| HCC | 33 | 450296 | -2 |
| BATRA | 10 | 64390 | 2 |
| TY | 4 | 5516 | 2 |
| Average | 15.25 | 144428 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $144 million. That figure was $165 million in NG’s case. Warrior Met Coal, Inc. (NYSE:HCC) is the most popular stock in this table. On the other hand Tri Continental Corporation (NYSE:TY) is the least popular one with only 4 bullish hedge fund positions. NovaGold Resources Inc. (NYSE:NG) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately NG wasn’t nearly as popular as these 15 stock and hedge funds that were betting on NG were disappointed as the stock returned 2.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.