Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
New Gold Inc. (NYSE:NGD) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds’ portfolios at the end of June. At the end of this article we will also compare NGD to other stocks including Matrix Service Company (NASDAQ:MTRX), Navigator Holdings Ltd (NYSE:NVGS), and OneSpan Inc. (NASDAQ:OSPN) to get a better sense of its popularity. Our calculations also showed that NGD isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the latest hedge fund action regarding New Gold Inc. (NYSE:NGD).
Hedge fund activity in New Gold Inc. (NYSE:NGD)
At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in NGD 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, Kopernik Global Investors was the largest shareholder of New Gold Inc. (NYSE:NGD), with a stake worth $37.6 million reported as of the end of March. Trailing Kopernik Global Investors was Renaissance Technologies, which amassed a stake valued at $13.2 million. Arrowstreet Capital, Saba Capital, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Gotham Asset Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Horizon Asset Management).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as New Gold Inc. (NYSE:NGD) but similarly valued. We will take a look at Matrix Service Company (NASDAQ:MTRX), Navigator Holdings Ltd (NYSE:NVGS), OneSpan Inc. (NASDAQ:OSPN), and CEVA, Inc. (NASDAQ:CEVA). This group of stocks’ market caps are similar to NGD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MTRX | 14 | 32176 | -1 |
| NVGS | 14 | 240893 | 1 |
| OSPN | 10 | 71773 | -3 |
| CEVA | 10 | 25856 | 0 |
| Average | 12 | 92675 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $62 million in NGD’s case. Matrix Service Company (NASDAQ:MTRX) is the most popular stock in this table. On the other hand OneSpan Inc. (NASDAQ:OSPN) is the least popular one with only 10 bullish hedge fund positions. New Gold Inc. (NYSE:NGD) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on NGD, though not to the same extent, as the stock returned 5.2% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.