World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Newpark Resources Inc (NYSE:NR) was in 15 hedge funds’ portfolios at the end of March. NR investors should be aware of an increase in hedge fund interest of late. There were 10 hedge funds in our database with NR positions at the end of the previous quarter. Our calculations also showed that NR isn’t among the 30 most popular stocks among hedge funds.
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 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 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 take a gander at the recent hedge fund action surrounding Newpark Resources Inc (NYSE:NR).
Hedge fund activity in Newpark Resources Inc (NYSE:NR)
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in NR a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in Newpark Resources Inc (NYSE:NR) was held by Royce & Associates, which reported holding $25.2 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $4.5 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Arrowstreet Capital.
Consequently, some big names have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, initiated the most outsized position in Newpark Resources Inc (NYSE:NR). Citadel Investment Group had $44.3 million invested in the company at the end of the quarter. Michael A. Price and Amos Meron’s Empyrean Capital Partners also initiated a $20.9 million position during the quarter. The following funds were also among the new NR investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Joel Greenblatt’s Gotham Asset Management, and Hoon Kim’s Quantinno Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Newpark Resources Inc (NYSE:NR) but similarly valued. These stocks are Goldman Sachs BDC, Inc. (NYSE:GSBD), Malibu Boats Inc (NASDAQ:MBUU), Materialise NV (NASDAQ:MTLS), and Yirendai Ltd. (NYSE:YRD). This group of stocks’ market caps are closest to NR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GSBD | 1 | 3812 | -3 |
| MBUU | 18 | 96784 | -4 |
| MTLS | 4 | 9101 | 0 |
| YRD | 3 | 5126 | 0 |
| Average | 6.5 | 28706 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $42 million in NR’s case. Malibu Boats Inc (NASDAQ:MBUU) is the most popular stock in this table. On the other hand Goldman Sachs BDC, Inc. (NYSE:GSBD) is the least popular one with only 1 bullish hedge fund positions. Newpark Resources Inc (NYSE:NR) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. Unfortunately NR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NR were disappointed as the stock returned -27.5% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
