We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on National Vision Holdings, Inc. (NASDAQ:EYE).
Is National Vision Holdings, Inc. (NASDAQ:EYE) the right investment to pursue these days? Prominent investors are becoming less hopeful. The number of bullish hedge fund bets were trimmed by 10 in recent months. Our calculations also showed that EYE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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 stocks that are in our short portfolio.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the recent hedge fund action regarding National Vision Holdings, Inc. (NASDAQ:EYE).
What does smart money think about National Vision Holdings, Inc. (NASDAQ:EYE)?
Heading into the first quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EYE over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Adage Capital Management held the most valuable stake in National Vision Holdings, Inc. (NASDAQ:EYE), which was worth $249.1 million at the end of the third quarter. On the second spot was Select Equity Group which amassed $86.2 million worth of shares. Citadel Investment Group, Impax Asset Management, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Stony Point Capital allocated the biggest weight to National Vision Holdings, Inc. (NASDAQ:EYE), around 3.37% of its 13F portfolio. Adage Capital Management is also relatively very bullish on the stock, earmarking 0.61 percent of its 13F equity portfolio to EYE.
Judging by the fact that National Vision Holdings, Inc. (NASDAQ:EYE) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there were a few money managers who were dropping their entire stakes in the third quarter. At the top of the heap, Alexander Mitchell’s Scopus Asset Management cut the biggest position of all the hedgies followed by Insider Monkey, totaling about $12.6 million in stock, and Jeffrey Talpins’s Element Capital Management was right behind this move, as the fund sold off about $6.8 million worth. These transactions are important to note, as total hedge fund interest was cut by 10 funds in the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as National Vision Holdings, Inc. (NASDAQ:EYE) but similarly valued. These stocks are Endava plc (NYSE:DAVA), Lattice Semiconductor Corporation (NASDAQ:LSCC), Vermilion Energy Inc (NYSE:VET), and Wingstop Inc (NASDAQ:WING). This group of stocks’ market caps resemble EYE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DAVA | 7 | 59418 | 2 |
| LSCC | 32 | 281293 | 5 |
| VET | 8 | 42512 | -2 |
| WING | 24 | 242064 | -1 |
| Average | 17.75 | 156322 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $387 million in EYE’s case. Lattice Semiconductor Corporation (NASDAQ:LSCC) is the most popular stock in this table. On the other hand Endava plc (NYSE:DAVA) is the least popular one with only 7 bullish hedge fund positions. National Vision Holdings, Inc. (NASDAQ:EYE) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately EYE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EYE investors were disappointed as the stock returned -34.7% 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
