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. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds.
Natural Resource Partners LP (NYSE:NRP) has experienced an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that NRP 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. We’re going to take a look at the latest hedge fund action surrounding Natural Resource Partners LP (NYSE:NRP).
What does smart money think about Natural Resource Partners LP (NYSE:NRP)?
At Q2’s end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in NRP over the last 16 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, GoldenTree Asset Management held the most valuable stake in Natural Resource Partners LP (NYSE:NRP), which was worth $19.9 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $2.2 million worth of shares. Moreover, Renaissance Technologies, Marshall Wace LLP, and PEAK6 Capital Management were also bullish on Natural Resource Partners LP (NYSE:NRP), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. PEAK6 Capital Management, managed by Matthew Hulsizer, created the most valuable position in Natural Resource Partners LP (NYSE:NRP). PEAK6 Capital Management had $0.3 million invested in the company at the end of the quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Natural Resource Partners LP (NYSE:NRP) but similarly valued. These stocks are Diplomat Pharmacy Inc (NYSE:DPLO), PDF Solutions, Inc. (NASDAQ:PDFS), Synthorx, Inc. (NASDAQ:THOR), and Replimune Group, Inc. (NASDAQ:REPL). This group of stocks’ market caps resemble NRP’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 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $24 million in NRP’s case. Diplomat Pharmacy Inc (NYSE:DPLO) is the most popular stock in this table. On the other hand Replimune Group, Inc. (NASDAQ:REPL) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Natural Resource Partners LP (NYSE:NRP) is even less popular than REPL. Hedge funds dodged a bullet by taking a bearish stance towards NRP. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NRP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NRP investors were disappointed as the stock returned -27.3% 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.