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Were Hedge Funds Right About Souring On Nielsen Holdings plc (NLSN)?

We are still in an overall bull market and many stocks that smart money investors were piling into 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. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Nielsen Holdings plc (NYSE:NLSN).

Is Nielsen Holdings plc (NYSE:NLSN) ready to rally soon? The smart money is getting less bullish. The number of long hedge fund bets fell by 5 in recent months. Our calculations also showed that NLSN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). NLSN was in 30 hedge funds’ portfolios at the end of September. There were 35 hedge funds in our database with NLSN holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Paul Singer ELLIOTT MANAGEMENT

Paul Singer of Elliott Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the recent hedge fund action regarding Nielsen Holdings plc (NYSE:NLSN).

What have hedge funds been doing with Nielsen Holdings plc (NYSE:NLSN)?

At Q3’s end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NLSN 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.

NLSN_dec2019

The largest stake in Nielsen Holdings plc (NYSE:NLSN) was held by Windacre Partnership, which reported holding $324.7 million worth of stock at the end of September. It was followed by Elliott Management with a $297.5 million position. Other investors bullish on the company included Ariel Investments, Renaissance Technologies, and Deccan Value Advisors. In terms of the portfolio weights assigned to each position Windacre Partnership allocated the biggest weight to Nielsen Holdings plc (NYSE:NLSN), around 16.24% of its portfolio. Litespeed Management is also relatively very bullish on the stock, dishing out 8.15 percent of its 13F equity portfolio to NLSN.

Seeing as Nielsen Holdings plc (NYSE:NLSN) has witnessed falling interest from hedge fund managers, it’s safe to say that there were a few funds who sold off their positions entirely in the third quarter. Intriguingly, Paul Singer’s Elliott Management sold off the biggest position of the 750 funds tracked by Insider Monkey, comprising an estimated $67.8 million in stock, and Leon Cooperman’s Omega Advisors was right behind this move, as the fund sold off about $57.1 million worth. These moves are interesting, as total hedge fund interest dropped by 5 funds in the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Nielsen Holdings plc (NYSE:NLSN) but similarly valued. These stocks are Douglas Emmett, Inc. (NYSE:DEI), Teva Pharmaceutical Industries Limited (NYSE:TEVA), Huaneng Power International Inc (NYSE:HNP), and AerCap Holdings N.V. (NYSE:AER). All of these stocks’ market caps resemble NLSN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DEI 20 570666 1
TEVA 23 660560 -2
HNP 3 2567 0
AER 28 1220299 1
Average 18.5 613523 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $614 million. That figure was $1129 million in NLSN’s case. AerCap Holdings N.V. (NYSE:AER) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Nielsen Holdings plc (NYSE:NLSN) is more popular among hedge funds. 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 NLSN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NLSN were disappointed as the stock returned -7.7% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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