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Should You Buy Netfin Acquisition Corp. (NFIN)?

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Netfin Acquisition Corp. (NASDAQ:NFIN) shareholders have witnessed an increase in hedge fund sentiment in recent months. Our calculations also showed that NFIN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Sander Gerber Hudson Bay Capital Management

Sander Gerber of Hudson Bay Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the recent hedge fund action surrounding Netfin Acquisition Corp. (NASDAQ:NFIN).

How are hedge funds trading Netfin Acquisition Corp. (NASDAQ:NFIN)?

Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11 from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NFIN over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Magnetar Capital held the most valuable stake in Netfin Acquisition Corp. (NASDAQ:NFIN), which was worth $10.1 million at the end of the third quarter. On the second spot was Hudson Bay Capital Management which amassed $7.3 million worth of shares. Owl Creek Asset Management, Fir Tree, and Mangrove Partners 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 Vertex One Asset Management allocated the biggest weight to Netfin Acquisition Corp. (NASDAQ:NFIN), around 0.71% of its 13F portfolio. Bulldog Investors is also relatively very bullish on the stock, earmarking 0.47 percent of its 13F equity portfolio to NFIN.

Now, key hedge funds have been driving this bullishness. Magnetar Capital, managed by Alec Litowitz and Ross Laser, created the most outsized position in Netfin Acquisition Corp. (NASDAQ:NFIN). Magnetar Capital had $10.1 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also made a $7.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Jeffrey Altman’s Owl Creek Asset Management, Jeffrey Tannenbaum’s Fir Tree, and Nathaniel August’s Mangrove Partners.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Netfin Acquisition Corp. (NASDAQ:NFIN) but similarly valued. These stocks are Republic First Bancorp, Inc. (NASDAQ:FRBK), Moneygram International Inc (NASDAQ:MGI), PDL BioPharma Inc. (NASDAQ:PDLI), and American Realty Investors, Inc. (NYSE:ARL). This group of stocks’ market values are similar to NFIN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FRBK 5 5505 -1
MGI 10 15716 -3
PDLI 17 43582 4
ARL 1 569 0
Average 8.25 16343 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $42 million in NFIN’s case. PDL BioPharma Inc. (NASDAQ:PDLI) is the most popular stock in this table. On the other hand American Realty Investors, Inc. (NYSE:ARL) is the least popular one with only 1 bullish hedge fund positions. Netfin Acquisition Corp. (NASDAQ:NFIN) is not the most popular stock in this group but hedge fund interest is still above average. 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NFIN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NFIN were disappointed as the stock returned 0.5% during the fourth quarter (through the end of November) 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.

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