We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Nordic American Tankers Ltd (NYSE:NAT) and determine whether hedge funds skillfully traded this stock.
Is Nordic American Tankers Ltd (NYSE:NAT) the right pick for your portfolio? The best stock pickers were becoming less hopeful. The number of long hedge fund positions were trimmed by 2 recently. Our calculations also showed that NAT isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the key hedge fund action regarding Nordic American Tankers Ltd (NYSE:NAT).
What does smart money think about Nordic American Tankers Ltd (NYSE:NAT)?
At Q1’s end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NAT over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Nordic American Tankers Ltd (NYSE:NAT) was held by Millennium Management, which reported holding $5.6 million worth of stock at the end of September. It was followed by D E Shaw with a $4.9 million position. Other investors bullish on the company included Citadel Investment Group, AQR Capital Management, and GLG Partners. In terms of the portfolio weights assigned to each position Lyon Street Capital allocated the biggest weight to Nordic American Tankers Ltd (NYSE:NAT), around 0.85% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, designating 0.11 percent of its 13F equity portfolio to NAT.
Due to the fact that Nordic American Tankers Ltd (NYSE:NAT) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few fund managers who were dropping their entire stakes last quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest investment of all the hedgies monitored by Insider Monkey, totaling close to $8.8 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund dropped about $1.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Nordic American Tankers Ltd (NYSE:NAT) but similarly valued. We will take a look at Photronics, Inc. (NASDAQ:PLAB), PAE Incorporated (NASDAQ:PAE), BRP Group, Inc. (NASDAQ:BRP), and OraSure Technologies, Inc. (NASDAQ:OSUR). This group of stocks’ market values are similar to NAT’s market value.
|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 16 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $26 million in NAT’s case. Photronics, Inc. (NASDAQ:PLAB) is the most popular stock in this table. On the other hand BRP Group, Inc. (NASDAQ:BRP) is the least popular one with only 2 bullish hedge fund positions. Nordic American Tankers Ltd (NYSE:NAT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately NAT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NAT investors were disappointed as the stock returned -7.7% during 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.
Disclosure: None. This article was originally published at Insider Monkey.