Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in NovoCure Limited (NASDAQ:NVCR)? The smart money sentiment can provide an answer to this question.
Is NVCR a good stock to buy now? Hedge funds were reducing their bets on the stock. The number of bullish hedge fund positions retreated by 5 recently. NovoCure Limited (NASDAQ:NVCR) was in 22 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 27. Our calculations also showed that NVCR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a gander at the latest hedge fund action surrounding NovoCure Limited (NASDAQ:NVCR).
Do Hedge Funds Think NVCR Is A Good Stock To Buy Now?
At Q3’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in NVCR a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
More specifically, Darsana Capital Partners was the largest shareholder of NovoCure Limited (NASDAQ:NVCR), with a stake worth $147.5 million reported as of the end of September. Trailing Darsana Capital Partners was Renaissance Technologies, which amassed a stake valued at $108.8 million. Farallon Capital, Two Sigma Advisors, and Rhenman & Partners Asset Management 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 Darsana Capital Partners allocated the biggest weight to NovoCure Limited (NASDAQ:NVCR), around 7.5% of its 13F portfolio. Rhenman & Partners Asset Management is also relatively very bullish on the stock, setting aside 4.05 percent of its 13F equity portfolio to NVCR.
Due to the fact that NovoCure Limited (NASDAQ:NVCR) has witnessed a decline in interest from the smart money, logic holds that there were a few hedge funds who sold off their full holdings by the end of the third quarter. It’s worth mentioning that Donald Sussman’s Paloma Partners dumped the biggest position of all the hedgies monitored by Insider Monkey, totaling about $6.1 million in stock. Cliff Asness’s fund, AQR Capital Management, also dropped its stock, about $4.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to NovoCure Limited (NASDAQ:NVCR). We will take a look at Charles River Laboratories International Inc. (NYSE:CRL), Korea Electric Power Corporation (NYSE:KEP), Equity Lifestyle Properties, Inc. (NYSE:ELS), Gartner Inc (NYSE:IT), Nordson Corporation (NASDAQ:NDSN), Guardant Health, Inc. (NASDAQ:GH), and Kinross Gold Corporation (NYSE:KGC). This group of stocks’ market caps are closest to NVCR’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $733 million. That figure was $545 million in NVCR’s case. Guardant Health, Inc. (NASDAQ:GH) is the most popular stock in this table. On the other hand Korea Electric Power Corporation (NYSE:KEP) is the least popular one with only 5 bullish hedge fund positions. NovoCure Limited (NASDAQ:NVCR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NVCR is 48.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on NVCR as the stock returned 51.8% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.