Nutrien Ltd. (NTR) Fell Out Of Favor With Hedge Funds?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Nutrien Ltd. (NYSE:NTR) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Nutrien Ltd. (NYSE:NTR) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 22 hedge funds’ portfolios at the end of June. Our calculations also showed that NTR 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 Citrix Systems, Inc. (NASDAQ:CTXS), First Republic Bank (NYSE:FRC), and Paycom Software Inc (NYSE:PAYC) to gather more data points. Our calculations also showed that NTR 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 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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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 let’s take a look at the new hedge fund action encompassing Nutrien Ltd. (NYSE:NTR).

Hedge fund activity in Nutrien Ltd. (NYSE:NTR)

At second quarter’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in NTR a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in Nutrien Ltd. (NYSE:NTR), which was worth $274.7 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $46.3 million worth of shares. Adage Capital Management, Galibier Capital Management, and Millennium 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 Moerus Capital Management allocated the biggest weight to Nutrien Ltd. (NYSE:NTR), around 12.14% of its 13F portfolio. Galibier Capital Management is also relatively very bullish on the stock, dishing out 9.2 percent of its 13F equity portfolio to NTR.

Since Nutrien Ltd. (NYSE:NTR) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few fund managers who sold off their full holdings last quarter. It’s worth mentioning that Robert Richards’s Heathbridge Capital Management cut the biggest stake of all the hedgies followed by Insider Monkey, worth about $28 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund sold off about $26.8 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 take a look at hedge fund activity in other stocks similar to Nutrien Ltd. (NYSE:NTR). We will take a look at Citrix Systems, Inc. (NASDAQ:CTXS), First Republic Bank (NYSE:FRC), Paycom Software Inc (NYSE:PAYC), Yum China Holdings, Inc. (NYSE:YUMC), DISH Network Corp. (NASDAQ:DISH), Chewy, Inc. (NYSE:CHWY), and Delta Air Lines, Inc. (NYSE:DAL). This group of stocks’ market valuations are closest to NTR’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.1 hedge funds with bullish positions and the average amount invested in these stocks was $974 million. That figure was $491 million in NTR’s case. DISH Network Corp. (NASDAQ:DISH) is the most popular stock in this table. On the other hand Yum China Holdings, Inc. (NYSE:YUMC) is the least popular one with only 35 bullish hedge fund positions. Compared to these stocks Nutrien Ltd. (NYSE:NTR) is even less popular than YUMC. Our overall hedge fund sentiment score for NTR is 23.9. 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. Hedge funds clearly dropped the ball on NTR as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on NTR as the stock returned 23.6% during the third quarter and outperformed the market by an even larger margin.

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