Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Nestle SA (OTCMKTS:NSRGY) has seen a decrease in activity from the world’s largest hedge funds recently. NSRGY was in 4 hedge funds’ portfolios at the end of December. There were 5 hedge funds in our database with NSRGY holdings at the end of the previous quarter. Our calculations also showed that NSRGY 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 32 percentage points since May 2014 through March 12, 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.
We’re going to go over the key hedge fund action regarding Nestle SA (OTCMKTS:NSRGY).
What have hedge funds been doing with Nestle SA (OTCMKTS:NSRGY)?
Heading into the first quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NSRGY over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Tom Russo’s Gardner Russo & Gardner has the number one position in Nestle SA (OTCMKTS:NSRGY), worth close to $1.2061 billion, accounting for 10% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Fisher of Fisher Asset Management, with a $276 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions include Ed Beddow and William Tichy’s Beddow Capital Management, Scott Wallace’s Wallace Capital Management and .
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Eagle Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified NSRGY as a viable investment and initiated a position in the stock.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Nestle SA (OTCMKTS:NSRGY) but similarly valued. We will take a look at Royal Dutch Shell plc (NYSE:RDS), Pfizer Inc. (NYSE:PFE), Bank of America Corporation (NYSE:BAC), and UnitedHealth Group Inc. (NYSE:UNH). This group of stocks’ market values are closest to NSRGY’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RDS | 33 | 1619869 | -3 |
| PFE | 59 | 4674754 | 1 |
| BAC | 99 | 27370812 | -3 |
| UNH | 82 | 6875350 | 11 |
| Average | 68.25 | 10135196 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 68.25 hedge funds with bullish positions and the average amount invested in these stocks was $10135 million. That figure was $1502 million in NSRGY’s case. Bank of America Corporation (NYSE:BAC) is the most popular stock in this table. On the other hand Royal Dutch Shell plc (NYSE:RDS) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks Nestle SA (OTCMKTS:NSRGY) is even less popular than RDS. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on Nestle as the stock returned 15.5% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
