Is NASDAQ Inc. (NDAQ) A Good Stock To Buy?

Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. Between November 1, 2014 and October 30 of this year, less than 49% of the stocks in the S&P 500 beat the market. However, hedge funds’ top 30 stock picks from the index had a much higher success rate than this, at 63%. The returns from these 30 stocks also easily bested the broader market, at 9.5% compared to 5.2%, despite there being a few duds in there like Micron and Anadarko (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.

NASDAQ Inc. (NASDAQ:NDAQ) has experienced a decrease in hedge fund sentiment in recent months. NDAQ was in 15 hedge funds’ portfolios at the end of the third quarter of 2015. There were 20 hedge funds in our database with NDAQ positions at the end of the previous quarter. At the end of this article we will also compare NDAQ to other stocks, including Arch Capital Group Ltd. (NASDAQ:ACGL), Cablevision Systems Corporation (NYSE:CVC), and Dover Corp (NYSE:DOV) to get a better sense of its popularity.

According to most market participants, hedge funds are seen as unimportant, outdated financial vehicles of years past. While there are greater than 8000 funds in operation today, Our researchers look at the crème de la crème of this group, approximately 700 funds. Most estimates calculate that this group of people have their hands on most of all hedge funds’ total capital, and by tracking their finest investments, Insider Monkey has determined a few investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, we’re going to take a gander at the recent action surrounding NASDAQ Group, Inc. (NASDAQ:NDAQ).

How are hedge funds trading NASDAQ Inc. (NASDAQ:NDAQ)?

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Cliff Asness’s AQR Capital Management has the largest position in NASDAQ Inc. (NASDAQ:NDAQ), worth close to $52.3 million, comprising 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Millennium Management, led by Israel Englander, holding an $21.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. The remaining members of the smart money that are bullish comprise D. E. Shaw’s D E Shaw, David Harding’s Winton Capital Management and Phill Gross and Robert Atchinson’s Adage Capital Management.

Because NASDAQ Inc. (NASDAQ:NDAQ) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there exists a select few hedgies that elected to cut their full holdings in the third quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest position of the 700 funds monitored by Insider Monkey, worth close to $6.7 million in stock, and Wojciech Uzdelewicz’s Espalier Global Management was right behind this move, as the fund dropped about $2.4 million worth. These moves are interesting, as aggregate hedge fund interest fell by 5 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NASDAQ Inc. (NASDAQ:NDAQ) but similarly valued. We will take a look at Arch Capital Group Ltd. (NASDAQ:ACGL), Cablevision Systems Corporation (NYSE:CVC), Dover Corp (NYSE:DOV), and First Republic Bank (NYSE:FRC). All of these stocks’ market caps are closest to NDAQ’s market cap.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $820 million, versus $127 million in NDAQ’s case. Cablevision Systems Corporation (NYSE:CVC) is the most popular stock in this table. On the other hand Arch Capital Group Ltd. (NASDAQ:ACGL) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks, NASDAQ Inc. (NASDAQ:NDAQ) is even less popular than ACGL. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.