Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards NMI Holdings Inc (NASDAQ:NMIH) to find out whether there were any major changes in hedge funds’ views.
Is NMI Holdings Inc (NASDAQ:NMIH) a buy here? The best stock pickers were in an optimistic mood. The number of bullish hedge fund bets advanced by 3 lately. NMI Holdings Inc (NASDAQ:NMIH) was in 25 hedge funds’ portfolios at the end of March. The all time high for this statistic is 30. Our calculations also showed that NMIH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 22 hedge funds in our database with NMIH positions at the end of the fourth quarter.
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 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 S&P 500 ETFs by 115 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 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.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s analyze the key hedge fund action encompassing NMI Holdings Inc (NASDAQ:NMIH).
Do Hedge Funds Think NMIH Is A Good Stock To Buy Now?
At first quarter’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NMIH over the last 23 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Oaktree Capital Management held the most valuable stake in NMI Holdings Inc (NASDAQ:NMIH), which was worth $115 million at the end of the fourth quarter. On the second spot was Berylson Capital Partners which amassed $39.5 million worth of shares. Royce & Associates, Driehaus Capital, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Berylson Capital Partners allocated the biggest weight to NMI Holdings Inc (NASDAQ:NMIH), around 9.61% of its 13F portfolio. Oaktree Capital Management is also relatively very bullish on the stock, earmarking 1.77 percent of its 13F equity portfolio to NMIH.
As aggregate interest increased, specific money managers have jumped into NMI Holdings Inc (NASDAQ:NMIH) headfirst. BlueCrest Capital Mgmt., managed by Michael Platt and William Reeves, initiated the largest position in NMI Holdings Inc (NASDAQ:NMIH). BlueCrest Capital Mgmt. had $9.6 million invested in the company at the end of the quarter. Frank Fu’s CaaS Capital also made a $4.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Brandon Haley’s Holocene Advisors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s also examine hedge fund activity in other stocks similar to NMI Holdings Inc (NASDAQ:NMIH). We will take a look at Holly Energy Partners, L.P. (NYSE:HEP), Cohu, Inc. (NASDAQ:COHU), B&G Foods, Inc. (NYSE:BGS), Two Harbors Investment Corp (NYSE:TWO), California Resources Corporation (NYSE:CRC), Piper Sandler Companies (NYSE:PIPR), and Seacoast Banking Corporation of Florida (NASDAQ:SBCF). This group of stocks’ market caps are closest to NMIH’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $163 million. That figure was $263 million in NMIH’s case. Two Harbors Investment Corp (NYSE:TWO) is the most popular stock in this table. On the other hand Holly Energy Partners, L.P. (NYSE:HEP) is the least popular one with only 2 bullish hedge fund positions. NMI Holdings Inc (NASDAQ:NMIH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NMIH is 71.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and beat the market again by 6.7 percentage points. Unfortunately NMIH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on NMIH were disappointed as the stock returned -9.1% since the end of March (through 7/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.