“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards National General Holdings Corp (NASDAQ:NGHC).
Is National General Holdings Corp (NASDAQ:NGHC) a bargain? Money managers are betting on the stock. The number of long hedge fund bets moved up by 2 lately. Our calculations also showed that nghc 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’ 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.
Let’s take a look at the recent hedge fund action encompassing National General Holdings Corp (NASDAQ:NGHC).
How have hedgies been trading National General Holdings Corp (NASDAQ:NGHC)?
At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in NGHC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Park West Asset Management was the largest shareholder of National General Holdings Corp (NASDAQ:NGHC), with a stake worth $121.3 million reported as of the end of March. Trailing Park West Asset Management was MSDC Management, which amassed a stake valued at $51.3 million. Nut Tree Capital, Millennium Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in National General Holdings Corp (NASDAQ:NGHC). Arrowstreet Capital had $0.7 million invested in the company at the end of the quarter. Mike Vranos’s Ellington also initiated a $0.6 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, David Harding’s Winton Capital Management, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as National General Holdings Corp (NASDAQ:NGHC) but similarly valued. These stocks are Simpson Manufacturing Co, Inc. (NYSE:SSD), Adtalem Global Education Inc. (NYSE:ATGE), Cactus, Inc. (NYSE:WHD), and Quaker Chemical Corp (NYSE:KWR). This group of stocks’ market values resemble NGHC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SSD | 19 | 198545 | 2 |
| ATGE | 16 | 175755 | -4 |
| WHD | 27 | 291995 | 9 |
| KWR | 11 | 145447 | -2 |
| Average | 18.25 | 202936 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $203 million. That figure was $224 million in NGHC’s case. Cactus, Inc. (NYSE:WHD) is the most popular stock in this table. On the other hand Quaker Chemical Corp (NYSE:KWR) is the least popular one with only 11 bullish hedge fund positions. National General Holdings Corp (NASDAQ:NGHC) 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately NGHC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NGHC investors were disappointed as the stock returned -4.3% during the same time 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.
