We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards NVE Corporation (NASDAQ:NVEC).
Is NVEC a good stock to buy now? NVE Corporation (NASDAQ:NVEC) 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 third quarter of 2020. Our calculations also showed that NVEC 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). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as A-Mark Precious Metals, Inc. (NASDAQ:AMRK), Akumin Inc. (NASDAQ:AKU), and Unifi, Inc. (NYSE:UFI) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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 go over the fresh hedge fund action surrounding NVE Corporation (NASDAQ:NVEC).
Do Hedge Funds Think NVEC Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, 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, 12 hedge funds held shares or bullish call options in NVEC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the most valuable position in NVE Corporation (NASDAQ:NVEC). Renaissance Technologies has a $9.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Cliff Asness of AQR Capital Management, with a $1.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish include Ken Griffin’s Citadel Investment Group, Noam Gottesman’s GLG Partners and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Skylands Capital allocated the biggest weight to NVE Corporation (NASDAQ:NVEC), around 0.11% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to NVEC.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Royce & Associates. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Arrowstreet Capital).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as NVE Corporation (NASDAQ:NVEC) but similarly valued. These stocks are A-Mark Precious Metals, Inc. (NASDAQ:AMRK), Akumin Inc. (NASDAQ:AKU), Unifi, Inc. (NYSE:UFI), Equity Bancshares, Inc. (NASDAQ:EQBK), Reliant Bancorp, Inc. (NASDAQ:RBNC), Neptune Wellness Solutions Inc (NASDAQ:NEPT), and Xunlei Ltd (NASDAQ:XNET). This group of stocks’ market valuations match NVEC’s market valuation.
|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 5.4 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $17 million in NVEC’s case. Unifi, Inc. (NYSE:UFI) is the most popular stock in this table. On the other hand Akumin Inc. (NASDAQ:AKU) is the least popular one with only 3 bullish hedge fund positions. NVE Corporation (NASDAQ:NVEC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NVEC is 60.8. 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately NVEC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NVEC were disappointed as the stock returned 7.8% since the end of September (through 12/8) 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.