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Were Hedge Funds Right About Souring On National Health Investors Inc (NHI)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding National Health Investors Inc (NYSE:NHI) and determine whether hedge funds had an edge regarding this stock.

National Health Investors Inc (NYSE:NHI) has seen a decrease in support from the world’s most elite money managers of late. Our calculations also showed that NHI isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

At the moment there are plenty of metrics investors put to use to evaluate stocks. A couple of the most under-the-radar metrics are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the best fund managers can outpace the market by a superb amount (see the details here).

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 7 most expensive cigarette brands to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the recent hedge fund action encompassing National Health Investors Inc (NYSE:NHI).

Hedge fund activity in National Health Investors Inc (NYSE:NHI)

At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NHI over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in National Health Investors Inc (NYSE:NHI) was held by Renaissance Technologies, which reported holding $50.4 million worth of stock at the end of September. It was followed by Millennium Management with a $11.8 million position. Other investors bullish on the company included Carlson Capital, Two Sigma Advisors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to National Health Investors Inc (NYSE:NHI), around 0.45% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, setting aside 0.3 percent of its 13F equity portfolio to NHI.

Due to the fact that National Health Investors Inc (NYSE:NHI) has faced falling interest from hedge fund managers, logic holds that there was a specific group of fund managers that elected to cut their entire stakes by the end of the first quarter. Intriguingly, Steve Cohen’s Point72 Asset Management sold off the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling close to $0.7 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $0.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as National Health Investors Inc (NYSE:NHI) but similarly valued. These stocks are Independent Bank Corp (NASDAQ:INDB), SINA Corp (NASDAQ:SINA), Mimecast Limited (NASDAQ:MIME), and Stamps.com Inc. (NASDAQ:STMP). All of these stocks’ market caps resemble NHI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INDB 4 10050 -10
SINA 13 124514 -5
MIME 39 517022 8
STMP 29 465670 9
Average 21.25 279314 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $279 million. That figure was $100 million in NHI’s case. Mimecast Limited (NASDAQ:MIME) is the most popular stock in this table. On the other hand Independent Bank Corp (NASDAQ:INDB) is the least popular one with only 4 bullish hedge fund positions. National Health Investors Inc (NYSE:NHI) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on NHI, though not to the same extent, as the stock returned 20.4% during the second quarter and outperformed the market.

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