Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 30 stock picks outperformed the S&P 500 Index by 4 percentage points through the middle of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Is National Health Investors Inc (NYSE:NHI) a bargain? The smart money is turning less bullish. The number of long hedge fund positions went down by 1 in recent months. Our calculations also showed that nhi isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a gander at the latest hedge fund action regarding National Health Investors Inc (NYSE:NHI).
Hedge fund activity in National Health Investors Inc (NYSE:NHI)
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NHI over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in National Health Investors Inc (NYSE:NHI) was held by Renaissance Technologies, which reported holding $48.1 million worth of stock at the end of September. It was followed by Millennium Management with a $11.9 million position. Other investors bullish on the company included Two Sigma Advisors, Citadel Investment Group, and AQR Capital Management.
Due to the fact that National Health Investors Inc (NYSE:NHI) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few hedge funds that decided to sell off their positions entirely last quarter. Intriguingly, D. E. Shaw’s D E Shaw said goodbye to the largest investment of the “upper crust” of funds followed by Insider Monkey, valued at close to $1.7 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also cut its stock, about $0.5 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to National Health Investors Inc (NYSE:NHI). These stocks are Darling Ingredients Inc. (NYSE:DAR), Ocean Rig UDW Inc (NASDAQ:ORIG), Greif, Inc. (NYSE:GEF), and Antero Midstream GP LP (NYSE:AMGP). This group of stocks’ market values match NHI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DAR | 19 | 305835 | 4 |
| ORIG | 28 | 1808393 | 1 |
| GEF | 19 | 137228 | -1 |
| AMGP | 17 | 171786 | 6 |
| Average | 20.75 | 605811 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $606 million. That figure was $73 million in NHI’s case. Ocean Rig UDW Inc (NASDAQ:ORIG) is the most popular stock in this table. On the other hand Antero Midstream GP LP (NYSE:AMGP) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks National Health Investors Inc (NYSE:NHI) is even less popular than AMGP. 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.
Disclosure: None. This article was originally published at Insider Monkey.
