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Is New Gold Inc. (NGD) Going To Burn These Hedge Funds ?

Is New Gold Inc. (NYSE:NGD) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is New Gold Inc. (NYSE:NGD) a buy, sell, or hold? Hedge funds are turning bullish. The number of bullish hedge fund positions increased by 1 lately. Our calculations also showed that NGD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

BlueMountain Capital Management's Returns, AUM and Holdings

Andrew Feldstein and Stephen Siderow of Blue Mountain Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the new hedge fund action encompassing New Gold Inc. (NYSE:NGD).

What does smart money think about New Gold Inc. (NYSE:NGD)?

At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in NGD a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, Kopernik Global Investors held the most valuable stake in New Gold Inc. (NYSE:NGD), which was worth $39.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $22.2 million worth of shares. Luminus Management, Millennium Management, and Arrowstreet Capital 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 Kopernik Global Investors allocated the biggest weight to New Gold Inc. (NYSE:NGD), around 7.52% of its 13F portfolio. Signition LP is also relatively very bullish on the stock, dishing out 0.28 percent of its 13F equity portfolio to NGD.

As industrywide interest jumped, some big names have been driving this bullishness. Luminus Management, managed by Jonathan Barrett and Paul Segal, established the biggest position in New Gold Inc. (NYSE:NGD). Luminus Management had $7.8 million invested in the company at the end of the quarter. Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital also initiated a $0.5 million position during the quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as New Gold Inc. (NYSE:NGD) but similarly valued. These stocks are Nabors Industries Ltd. (NYSE:NBR), Golar LNG Partners LP (NASDAQ:GMLP), Allegiance Bancshares, Inc. (NASDAQ:ABTX), and LeMaitre Vascular Inc (NASDAQ:LMAT). This group of stocks’ market valuations are similar to NGD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NBR 20 89531 -2
GMLP 4 36061 -2
ABTX 8 18893 2
LMAT 10 12279 -1
Average 10.5 39191 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $85 million in NGD’s case. Nabors Industries Ltd. (NYSE:NBR) is the most popular stock in this table. On the other hand Golar LNG Partners LP (NASDAQ:GMLP) is the least popular one with only 4 bullish hedge fund positions. New Gold Inc. (NYSE:NGD) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NGD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NGD were disappointed as the stock returned -16.8% during the fourth quarter (through the end of November) 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 this year.

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

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