Was The Smart Money Right About Herbalife Nutrition Ltd. (HLF)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Herbalife Nutrition Ltd. (NYSE:HLF).

Is Herbalife Nutrition Ltd. (NYSE:HLF) the right investment to pursue these days? Hedge funds were betting on the stock. The number of long hedge fund bets inched up by 5 recently. Herbalife Nutrition Ltd. (NYSE:HLF) was in 41 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 44. Our calculations also showed that HLF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 36 hedge funds in our database with HLF positions at the end of the third quarter.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Most Popular Stocks Among Hedge Funds

Carl Icahn of Icahn Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to take a gander at the new hedge fund action encompassing Herbalife Nutrition Ltd. (NYSE:HLF).

Do Hedge Funds Think HLF Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in HLF a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is HLF A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Icahn Capital LP, managed by Carl Icahn, holds the largest position in Herbalife Nutrition Ltd. (NYSE:HLF). Icahn Capital LP has a $985.3 million position in the stock, comprising 4.9% of its 13F portfolio. Coming in second is Renaissance Technologies, holding a $521.2 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish include William Duhamel’s Route One Investment Company, Vinit Bodas’s Deccan Value Advisors and Tom Purcell and Marco Tablada’s Alua Capital Management. In terms of the portfolio weights assigned to each position Bronte Capital allocated the biggest weight to Herbalife Nutrition Ltd. (NYSE:HLF), around 15.65% of its 13F portfolio. General Equity Partners is also relatively very bullish on the stock, dishing out 14.38 percent of its 13F equity portfolio to HLF.

As aggregate interest increased, some big names have been driving this bullishness. Alua Capital Management, managed by Tom Purcell and Marco Tablada, initiated the largest position in Herbalife Nutrition Ltd. (NYSE:HLF). Alua Capital Management had $138.4 million invested in the company at the end of the quarter. Kenneth Mario Garschina’s Mason Capital Management also initiated a $109.1 million position during the quarter. The other funds with brand new HLF positions are Steve Cohen’s Point72 Asset Management, Dmitry Balyasny’s Balyasny Asset Management, and Richard Schimel and Lawrence Sapanski’s Cinctive Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Herbalife Nutrition Ltd. (NYSE:HLF). These stocks are The Timken Company (NYSE:TKR), MSA Safety Incorporated (NYSE:MSA), 1Life Healthcare, Inc. (NASDAQ:ONEM), Life Storage, Inc. (NYSE:LSI), BRP Inc. (NASDAQ:DOOO), Columbia Sportswear Company (NASDAQ:COLM), and Elbit Systems Ltd. (NASDAQ:ESLT). All of these stocks’ market caps are similar to HLF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TKR 34 265044 0
MSA 13 18744 -1
ONEM 30 787070 8
LSI 17 142613 -1
DOOO 15 181614 3
COLM 14 112803 -5
ESLT 5 25092 1
Average 18.3 218997 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.3 hedge funds with bullish positions and the average amount invested in these stocks was $219 million. That figure was $2726 million in HLF’s case. The Timken Company (NYSE:TKR) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Herbalife Nutrition Ltd. (NYSE:HLF) is more popular among hedge funds. Our overall hedge fund sentiment score for HLF is 88. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Unfortunately HLF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HLF were disappointed as the stock returned -4.7% since the end of the fourth quarter (through 4/30) 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 since 2019.

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