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Newmark Group, Inc. (NMRK): Hedge Funds In Wait-and-See Mode

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Newmark Group, Inc. (NASDAQ:NMRK) and determine whether the smart money was really smart about this stock.

Newmark Group, Inc. (NASDAQ:NMRK) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 24 hedge funds’ portfolios at the end of June. Our calculations also showed that NMRK isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 Transportadora de Gas del Sur SA (NYSE:TGS), Crescent Point Energy Corp (NYSE:CPG), and Welbilt, Inc. (NYSE:WBT) to gather more data points. Our calculations also showed that NMRK isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 58 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.

Emanuel J. Friedman

Emanuel Friedman of EJF Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we’re going to take a look at the fresh hedge fund action regarding Newmark Group, Inc. (NASDAQ:NMRK).

How are hedge funds trading Newmark Group, Inc. (NASDAQ:NMRK)?

At second quarter’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in NMRK a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Cardinal Capital, managed by Amy Minella, holds the biggest position in Newmark Group, Inc. (NASDAQ:NMRK). Cardinal Capital has a $20.8 million position in the stock, comprising 0.9% of its 13F portfolio. On Cardinal Capital’s heels is Michael A. Price and Amos Meron of Empyrean Capital Partners, with a $18.6 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions consist of Emanuel J. Friedman’s EJF Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and John Paulson’s Paulson & Co. In terms of the portfolio weights assigned to each position EJF Capital allocated the biggest weight to Newmark Group, Inc. (NASDAQ:NMRK), around 1.77% of its 13F portfolio. Empyrean Capital Partners is also relatively very bullish on the stock, designating 1.11 percent of its 13F equity portfolio to NMRK.

Judging by the fact that Newmark Group, Inc. (NASDAQ:NMRK) has experienced a decline in interest from the smart money, logic holds that there is a sect of hedge funds who sold off their entire stakes in the second quarter. At the top of the heap, Mika Toikka’s AlphaCrest Capital Management dumped the largest position of all the hedgies followed by Insider Monkey, valued at an estimated $1.6 million in stock. Greg Eisner’s fund, Engineers Gate Manager, also cut its stock, about $0.8 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Newmark Group, Inc. (NASDAQ:NMRK). These stocks are Transportadora de Gas del Sur SA (NYSE:TGS), Crescent Point Energy Corp (NYSE:CPG), Welbilt, Inc. (NYSE:WBT), American Finance Trust, Inc. (NASDAQ:AFIN), American Axle & Manufacturing Holdings, Inc. (NYSE:AXL), Precigen, Inc. (NASDAQ:PGEN), and NextPoint Residential Trust Inc (NYSE:NXRT). This group of stocks’ market values are closest to NMRK’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TGS 5 12707 -1
CPG 9 12064 -1
WBT 22 204111 -3
AFIN 10 12218 0
AXL 20 72878 -2
PGEN 15 53978 2
NXRT 13 69108 2
Average 13.4 62438 -0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.4 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $94 million in NMRK’s case. Welbilt, Inc. (NYSE:WBT) is the most popular stock in this table. On the other hand Transportadora de Gas del Sur SA (NYSE:TGS) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Newmark Group, Inc. (NASDAQ:NMRK) is more popular among hedge funds. Our overall hedge fund sentiment score for NMRK is 85. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Unfortunately NMRK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NMRK were disappointed as the stock returned -13% since the end of the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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