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Were Hedge Funds Right About Souring On NortonLifeLock Inc. (NLOK)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards NortonLifeLock Inc. (NASDAQ:NLOK) at the end of the first quarter and determine whether the smart money was really smart about this stock.

NortonLifeLock Inc. (NASDAQ:NLOK) was in 42 hedge funds’ portfolios at the end of the first quarter of 2020. NLOK has seen a decrease in activity from the world’s largest hedge funds in recent months. There were 46 hedge funds in our database with NLOK positions at the end of the previous quarter. Our calculations also showed that NLOK 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 dozens of signals investors employ to analyze stocks. A couple of the less known signals are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top investment managers can outclass the market by a healthy margin (see the details here).

hedge fund research

George Soros of Soros Fund Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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. Keeping this in mind let’s go over the key hedge fund action surrounding NortonLifeLock Inc. (NASDAQ:NLOK).

Hedge fund activity in NortonLifeLock Inc. (NASDAQ:NLOK)

At Q1’s end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 29 hedge funds with a bullish position in NLOK a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Starboard Value LP, managed by Jeffrey Smith, holds the number one position in NortonLifeLock Inc. (NASDAQ:NLOK). Starboard Value LP has a $499 million position in the stock, comprising 20.2% of its 13F portfolio. The second most bullish fund manager is AQR Capital Management, led by Cliff Asness, holding a $244.9 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining peers that are bullish include Ken Griffin’s Citadel Investment Group, Andrew Weiss’s Weiss Asset Management and George Soros’s Soros Fund Management. In terms of the portfolio weights assigned to each position Starboard Value LP allocated the biggest weight to NortonLifeLock Inc. (NASDAQ:NLOK), around 20.23% of its 13F portfolio. Totem Point Management is also relatively very bullish on the stock, dishing out 18.71 percent of its 13F equity portfolio to NLOK.

Since NortonLifeLock Inc. (NASDAQ:NLOK) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few funds that elected to cut their entire stakes heading into Q4. It’s worth mentioning that Paul Singer’s Elliott Management dumped the largest stake of all the hedgies tracked by Insider Monkey, totaling about $68 million in stock. Cyrus de Weck’s fund, Portsea Asset Management, also cut its stock, about $30.1 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 4 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to NortonLifeLock Inc. (NASDAQ:NLOK). These stocks are Expeditors International of Washington, Inc. (NASDAQ:EXPD), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), Shinhan Financial Group Co., Ltd. (NYSE:SHG), and Discover Financial Services (NYSE:DFS). This group of stocks’ market valuations are similar to NLOK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EXPD 31 346287 4
SSNC 57 1732077 -2
SHG 5 8469 2
DFS 40 466951 1
Average 33.25 638446 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $638 million. That figure was $1352 million in NLOK’s case. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 5 bullish hedge fund positions. NortonLifeLock Inc. (NASDAQ:NLOK) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately NLOK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NLOK were disappointed as the stock returned 6.6% 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 many of these stocks already outperformed the market so far this year.

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