Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The fourth quarter of 2018 is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Nexgen Energy Ltd. (NYSE:NXE).
Is Nexgen Energy Ltd. (NYSE:NXE) ready to rally soon? Investors who are in the know are getting more bullish. The number of long hedge fund bets improved by 1 lately. Our calculations also showed that NXE isn’t among the 30 most popular stocks among hedge funds. NXE was in 7 hedge funds’ portfolios at the end of December. There were 6 hedge funds in our database with NXE holdings at the end of the previous 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 market by 32 percentage points since May 2014 through March 12, 2019 (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.
Let’s review the fresh hedge fund action surrounding Nexgen Energy Ltd. (NYSE:NXE).
How are hedge funds trading Nexgen Energy Ltd. (NYSE:NXE)?
At Q4’s end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NXE over the last 14 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Falcon Edge Capital was the largest shareholder of Nexgen Energy Ltd. (NYSE:NXE), with a stake worth $3.7 million reported as of the end of December. Trailing Falcon Edge Capital was Sprott Asset Management, which amassed a stake valued at $3 million. D E Shaw, Marshall Wace LLP, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key money managers were leading the bulls’ herd. Falcon Edge Capital, managed by Richard Gerson and Navroz D. Udwadia, established the most outsized position in Nexgen Energy Ltd. (NYSE:NXE). Falcon Edge Capital had $3.7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $0.4 million position during the quarter. The only other fund with a brand new NXE position is Jim Simons’s Renaissance Technologies.
Let’s check out hedge fund activity in other stocks similar to Nexgen Energy Ltd. (NYSE:NXE). These stocks are Accelerate Diagnostics Inc (NASDAQ:AXDX), Winmark Corporation (NASDAQ:WINA), Amalgamated Bank (NASDAQ:AMAL), and Dime Community Bancshares, Inc. (NASDAQ:DCOM). This group of stocks’ market caps resemble NXE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AXDX | 5 | 31482 | -1 |
| WINA | 8 | 85756 | 1 |
| AMAL | 6 | 71103 | -3 |
| DCOM | 9 | 35352 | -4 |
| Average | 7 | 55923 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $8 million in NXE’s case. Dime Community Bancshares, Inc. (NASDAQ:DCOM) is the most popular stock in this table. On the other hand Accelerate Diagnostics Inc (NASDAQ:AXDX) is the least popular one with only 5 bullish hedge fund positions. Nexgen Energy Ltd. (NYSE:NXE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately NXE wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); NXE investors were disappointed as the stock returned -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 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.