Did Hedge Funds Make The Right Call On National General Holdings Corp (NGHC) ?

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 National General Holdings Corp (NASDAQ:NGHC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

National General Holdings Corp (NASDAQ:NGHC) investors should pay attention to an increase in enthusiasm from smart money lately. Our calculations also showed that NGHC 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lee Ainslie of Maverick Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a glance at the recent hedge fund action regarding National General Holdings Corp (NASDAQ:NGHC).

How have hedgies been trading National General Holdings Corp (NASDAQ:NGHC)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NGHC over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Park West Asset Management was the largest shareholder of National General Holdings Corp (NASDAQ:NGHC), with a stake worth $95.4 million reported as of the end of September. Trailing Park West Asset Management was MSDC Management, which amassed a stake valued at $35.8 million. Nut Tree Capital, AQR Capital Management, and D E Shaw 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 Nut Tree Capital allocated the biggest weight to National General Holdings Corp (NASDAQ:NGHC), around 13.74% of its 13F portfolio. MSDC Management is also relatively very bullish on the stock, dishing out 9.68 percent of its 13F equity portfolio to NGHC.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into National General Holdings Corp (NASDAQ:NGHC) headfirst. Engineers Gate Manager, managed by Greg Eisner, created the most outsized position in National General Holdings Corp (NASDAQ:NGHC). Engineers Gate Manager had $0.8 million invested in the company at the end of the quarter. Ravee Mehta’s Nishkama Capital also initiated a $0.7 million position during the quarter. The only other fund with a brand new NGHC position is Mike Vranos’s Ellington.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as National General Holdings Corp (NASDAQ:NGHC) but similarly valued. These stocks are Northwest Natural Holding Company (NYSE:NWN), ASGN Incorporated (NYSE:ASGN), Evercore Inc. (NYSE:EVR), and Triton International Limited (NYSE:TRTN). This group of stocks’ market caps are closest to NGHC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $186 million in NGHC’s case. Evercore Inc. (NYSE:EVR) is the most popular stock in this table. On the other hand Triton International Limited (NYSE:TRTN) is the least popular one with only 12 bullish hedge fund positions. National General Holdings Corp (NASDAQ:NGHC) 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on NGHC as the stock returned 105.2% since the end of March and outperformed the market by an even larger margin.

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