Is NII Holdings, Inc. (NIHD) Going to Burn These Hedge Funds?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding NII Holdings, Inc. (NASDAQ:NIHD).

NII Holdings, Inc. (NASDAQ:NIHD) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Our calculations also showed that NIHD 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Nathaniel August - Mangrove Partners

Nathaniel August of Mangrove Partners

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 take a look at the fresh hedge fund action regarding NII Holdings, Inc. (NASDAQ:NIHD).

Hedge fund activity in NII Holdings, Inc. (NASDAQ:NIHD)

At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NIHD over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

The largest stake in NII Holdings, Inc. (NASDAQ:NIHD) was held by 683 Capital Partners, which reported holding $25.8 million worth of stock at the end of September. It was followed by Mangrove Partners with a $15.4 million position. Other investors bullish on the company included Point State Capital, Weiss Asset Management, and Newtyn Management. In terms of the portfolio weights assigned to each position Solas Capital Management allocated the biggest weight to NII Holdings, Inc. (NASDAQ:NIHD), around 3.77% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, earmarking 2.87 percent of its 13F equity portfolio to NIHD.

Due to the fact that NII Holdings, Inc. (NASDAQ:NIHD) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few fund managers that elected to cut their positions entirely by the end of the third quarter. It’s worth mentioning that Cliff Asness’s AQR Capital Management dropped the biggest stake of the 750 funds tracked by Insider Monkey, totaling about $1.5 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund said goodbye to about $0.2 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NII Holdings, Inc. (NASDAQ:NIHD) but similarly valued. We will take a look at Fang Holdings Limited (NYSE:SFUN), Bank of Commerce Holdings (NASDAQ:BOCH), Spero Therapeutics, Inc. (NASDAQ:SPRO), and BP Prudhoe Bay Royalty Trust (NYSE:BPT). This group of stocks’ market caps are similar to NIHD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SFUN 5 1116 -1
BOCH 5 11808 1
SPRO 7 32359 -1
BPT 3 1306 -2
Average 5 11647 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $70 million in NIHD’s case. Spero Therapeutics, Inc. (NASDAQ:SPRO) is the most popular stock in this table. On the other hand BP Prudhoe Bay Royalty Trust (NYSE:BPT) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks NII Holdings, Inc. (NASDAQ:NIHD) is more popular among hedge funds. 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 NIHD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NIHD were disappointed as the stock returned -5.1% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

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