Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
National HealthCare Corporation (NYSE:NHC) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds’ portfolios at the end of the second quarter of 2019. At the end of this article we will also compare NHC to other stocks including Waddell & Reed Financial, Inc. (NYSE:WDR), Easterly Government Properties Inc (NYSE:DEA), and United Fire Group, Inc. (NASDAQ:UFCS) to get a better sense of its popularity. Our calculations also showed that NHC isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 40 percentage points since May 2014 through May 30, 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the key hedge fund action regarding National HealthCare Corporation (NYSE:NHC).
What does smart money think about National HealthCare Corporation (NYSE:NHC)?
At the end of the second quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in NHC a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in National HealthCare Corporation (NYSE:NHC), which was worth $52.6 million at the end of the second quarter. On the second spot was AQR Capital Management which amassed $2.3 million worth of shares. Moreover, PEAK6 Capital Management, Winton Capital Management, and Two Sigma Advisors were also bullish on National HealthCare Corporation (NYSE:NHC), allocating a large percentage of their portfolios to this stock.
Due to the fact that National HealthCare Corporation (NYSE:NHC) has faced falling interest from the aggregate hedge fund industry, logic holds that there is a sect of money managers that elected to cut their positions entirely last quarter. Interestingly, Jeffrey Talpins’s Element Capital Management said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $0.3 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund sold off about $0.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as National HealthCare Corporation (NYSE:NHC) but similarly valued. We will take a look at Waddell & Reed Financial, Inc. (NYSE:WDR), Easterly Government Properties Inc (NYSE:DEA), United Fire Group, Inc. (NASDAQ:UFCS), and Tompkins Financial Corporation (NYSE:TMP). This group of stocks’ market caps resemble NHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WDR | 18 | 127891 | 0 |
| DEA | 6 | 60382 | 0 |
| UFCS | 10 | 17181 | 0 |
| TMP | 5 | 20068 | 0 |
| Average | 9.75 | 56381 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $58 million in NHC’s case. Waddell & Reed Financial, Inc. (NYSE:WDR) is the most popular stock in this table. On the other hand Tompkins Financial Corporation (NYSE:TMP) is the least popular one with only 5 bullish hedge fund positions. National HealthCare Corporation (NYSE:NHC) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NHC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NHC investors were disappointed as the stock returned 1.5% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.