Was The Smart Money Right About National Western Life Group, Inc. (NWLI)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article we will examine the smart money sentiment towards National Western Life Group, Inc. (NASDAQ:NWLI).

Is National Western Life Group, Inc. (NASDAQ:NWLI) a good investment right now? The smart money is in a pessimistic mood. The number of long hedge fund bets retreated by 3 recently. Our calculations also showed that NWLI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Xiniya Earnings Call Transcript XNY 2014 Q3

New York Stock Exchange

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the key hedge fund action encompassing National Western Life Group, Inc. (NASDAQ:NWLI).

What have hedge funds been doing with National Western Life Group, Inc. (NASDAQ:NWLI)?

At Q4’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in NWLI a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the biggest position in National Western Life Group, Inc.(NASDAQ:NWLI), worth close to $6.9 million, corresponding to less than 0.1%% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which holds a $5.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism comprise Ken Griffin’s Citadel Investment Group, Paul J. Isaac’s Arbiter Partners Capital Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Arbiter Partners Capital Management allocated the biggest weight to National Western Life Group, Inc. (NASDAQ:NWLI), around 0.14% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to NWLI.

Judging by the fact that National Western Life Group, Inc. (NASDAQ:NWLI) has faced falling interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of money managers who were dropping their full holdings in the third quarter. Intriguingly, Roger Ibbotson’s Zebra Capital Management dumped the largest investment of the 750 funds monitored by Insider Monkey, worth about $0.7 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund sold off about $0.4 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to National Western Life Group, Inc. (NASDAQ:NWLI). We will take a look at Nova Measuring Instruments Ltd. (NASDAQ:NVMI), Photronics, Inc. (NASDAQ:PLAB), The Greenbrier Companies Inc (NYSE:GBX), and ARMOUR Residential REIT, Inc. (NYSE:ARR). This group of stocks’ market valuations are closest to NWLI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NVMI 10 203261 0
PLAB 21 113599 3
GBX 12 24436 2
ARR 11 34003 -3
Average 13.5 93825 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $94 million. That figure was $15 million in NWLI’s case. Photronics, Inc. (NASDAQ:PLAB) is the most popular stock in this table. On the other hand Nova Measuring Instruments Ltd. (NASDAQ:NVMI) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks National Western Life Group, Inc. (NASDAQ:NWLI) is even less popular than NVMI. Hedge funds dodged a bullet by taking a bearish stance towards NWLI. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately NWLI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); NWLI investors were disappointed as the stock returned -37.1% during the same time period 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 so far in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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