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 Nomad Foods Limited (NYSE:NOMD) and determine whether hedge funds had an edge regarding this stock.
Nomad Foods Limited (NYSE:NOMD) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 34 hedge funds’ portfolios at the end of the second quarter of 2020. Our calculations also showed that NOMD 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 Landstar System, Inc. (NASDAQ:LSTR), II-VI, Inc. (NASDAQ:IIVI), and CAE, Inc. (NYSE:CAE) to gather more data points. Our calculations also showed that NOMD 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s view the new hedge fund action regarding Nomad Foods Limited (NYSE:NOMD).
Hedge fund activity in Nomad Foods Limited (NYSE:NOMD)
At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NOMD over the last 20 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Nomad Foods Limited (NYSE:NOMD), which was worth $63.4 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $62.8 million worth of shares. Samlyn Capital, D E Shaw, and BlueDrive Global Investors 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 BlueDrive Global Investors allocated the biggest weight to Nomad Foods Limited (NYSE:NOMD), around 12.91% of its 13F portfolio. AltraVue Capital is also relatively very bullish on the stock, dishing out 9.09 percent of its 13F equity portfolio to NOMD.
Due to the fact that Nomad Foods Limited (NYSE:NOMD) has faced a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of hedgies that decided to sell off their full holdings in the second quarter. At the top of the heap, Gregg Moskowitz’s Interval Partners dumped the largest stake of the 750 funds followed by Insider Monkey, comprising close to $12.5 million in stock, and Michael Hintze’s CQS Cayman LP was right behind this move, as the fund said goodbye to about $6 million worth. These bearish behaviors are important to note, 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 – not necessarily in the same industry as Nomad Foods Limited (NYSE:NOMD) but similarly valued. These stocks are Landstar System, Inc. (NASDAQ:LSTR), II-VI, Inc. (NASDAQ:IIVI), CAE, Inc. (NYSE:CAE), Noble Energy, Inc. (NASDAQ:NBL), Switch, Inc. (NYSE:SWCH), Grand Canyon Education Inc (NASDAQ:LOPE), and Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN). All of these stocks’ market caps match NOMD’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $341 million. That figure was $438 million in NOMD’s case. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 14 bullish hedge fund positions. Nomad Foods Limited (NYSE:NOMD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NOMD is 65. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on NOMD, though not to the same extent, as the stock returned 15% since the end of June and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.