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Were Hedge Funds Right About Snapping Up Nordstrom, Inc. (JWN)?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Nordstrom, Inc. (NYSE:JWN).

Is Nordstrom, Inc. (NYSE:JWN) a marvelous investment now? Prominent investors are getting more bullish. The number of bullish hedge fund bets increased by 1 in recent months. Our calculations also showed that JWN isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Rogers Ariel Investments

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s analyze the latest hedge fund action surrounding Nordstrom, Inc. (NYSE:JWN).

Hedge fund activity in Nordstrom, Inc. (NYSE:JWN)

At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in JWN over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

JWN_oct2019

Among these funds, Renaissance Technologies held the most valuable stake in Nordstrom, Inc. (NYSE:JWN), which was worth $32.7 million at the end of the second quarter. On the second spot was Bridgewater Associates which amassed $30.2 million worth of shares. Moreover, Ariel Investments, Citadel Investment Group, and Two Sigma Advisors were also bullish on Nordstrom, Inc. (NYSE:JWN), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, some big names were leading the bulls’ herd. Black-and-White Capital, managed by Seth Wunder, created the most valuable call position in Nordstrom, Inc. (NYSE:JWN). Black-and-White Capital had $9.6 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $6.2 million investment in the stock during the quarter. The following funds were also among the new JWN investors: Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, Michael Hintze’s CQS Cayman LP, and Douglas Dethy’s DC Capital Partners.

Let’s go over hedge fund activity in other stocks similar to Nordstrom, Inc. (NYSE:JWN). We will take a look at Hawaiian Electric Industries, Inc. (NYSE:HE), Blackstone Mortgage Trust Inc (NYSE:BXMT), Huntsman Corporation (NYSE:HUN), and Blueprint Medicines Corporation (NASDAQ:BPMC). This group of stocks’ market valuations match JWN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HE 17 146762 5
BXMT 20 143928 5
HUN 30 413733 -5
BPMC 27 663156 -5
Average 23.5 341895 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $342 million. That figure was $158 million in JWN’s case. Huntsman Corporation (NYSE:HUN) is the most popular stock in this table. On the other hand Hawaiian Electric Industries, Inc. (NYSE:HE) is the least popular one with only 17 bullish hedge fund positions. Nordstrom, Inc. (NYSE:JWN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on JWN as the stock returned 7.1% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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