Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first quarter, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first quarter still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Nasdaq, Inc. (NASDAQ:NDAQ) changed recently.
Nasdaq, Inc. (NASDAQ:NDAQ) investors should be aware of a decrease in enthusiasm from smart money of late. Our calculations also showed that NDAQ isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to analyze the recent hedge fund action encompassing Nasdaq, Inc. (NASDAQ:NDAQ).
How have hedgies been trading Nasdaq, Inc. (NASDAQ:NDAQ)?
Heading into the second quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -24% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in NDAQ a year ago. 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, D E Shaw was the largest shareholder of Nasdaq, Inc. (NASDAQ:NDAQ), with a stake worth $41.9 million reported as of the end of March. Trailing D E Shaw was Adage Capital Management, which amassed a stake valued at $12.7 million. Marshall Wace LLP, Gotham Asset Management, and Balyasny Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Nasdaq, Inc. (NASDAQ:NDAQ) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few money managers that decided to sell off their full holdings heading into Q3. Intriguingly, Israel Englander’s Millennium Management dropped the largest investment of the 700 funds tracked by Insider Monkey, comprising an estimated $26 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund cut about $22.8 million worth. These moves are interesting, as total hedge fund interest fell by 5 funds heading into Q3.
Let’s check out hedge fund activity in other stocks similar to Nasdaq, Inc. (NASDAQ:NDAQ). These stocks are Arthur J. Gallagher & Co. (NYSE:AJG), Regions Financial Corporation (NYSE:RF), Equifax Inc. (NYSE:EFX), and ZTO Express (Cayman) Inc. (NYSE:ZTO). This group of stocks’ market values resemble NDAQ’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AJG | 28 | 321793 | 6 |
| RF | 41 | 787954 | -1 |
| EFX | 24 | 1247020 | 2 |
| ZTO | 16 | 335206 | 3 |
| Average | 27.25 | 672993 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $673 million. That figure was $83 million in NDAQ’s case. Regions Financial Corporation (NYSE:RF) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Nasdaq, Inc. (NASDAQ:NDAQ) is even less popular than ZTO. Hedge funds clearly dropped the ball on NDAQ as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on NDAQ as the stock returned 10.9% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
