Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in NetGear, Inc. (NASDAQ:NTGR)? The smart money sentiment can provide an answer to this question.
NetGear, Inc. (NASDAQ:NTGR) was in 14 hedge funds’ portfolios at the end of December. NTGR shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. There were 16 hedge funds in our database with NTGR positions at the end of the previous quarter. Our calculations also showed that ntgr isn’t among the 30 most popular stocks among hedge funds.
If you’d ask most traders, hedge funds are assumed to be underperforming, old investment vehicles of yesteryear. While there are greater than 8000 funds with their doors open today, We look at the aristocrats of this group, about 750 funds. Most estimates calculate that this group of people oversee the majority of all hedge funds’ total asset base, and by tailing their finest investments, Insider Monkey has found various investment strategies that have historically surpassed the market. Insider Monkey’s flagship hedge fund strategy exceeded the S&P 500 index by nearly 5 percentage points a year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.
Didric Cederholm of Lion Point Capital
Let’s take a look at the recent hedge fund action encompassing NetGear, Inc. (NASDAQ:NTGR).
What have hedge funds been doing with NetGear, Inc. (NASDAQ:NTGR)?
Heading into the first quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in NTGR a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Newtyn Management was the largest shareholder of NetGear, Inc. (NASDAQ:NTGR), with a stake worth $16 million reported as of the end of December. Trailing Newtyn Management was Water Island Capital, which amassed a stake valued at $12.9 million. Lion Point, Renaissance Technologies, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as NetGear, Inc. (NASDAQ:NTGR) has experienced falling interest from the smart money, logic holds that there exists a select few hedge funds who sold off their entire stakes heading into Q3. It’s worth mentioning that Benjamin A. Smith’s Laurion Capital Management said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, worth close to $4.9 million in stock. Noam Gottesman’s fund, GLG Partners, also said goodbye to its stock, about $1.9 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 2 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks similar to NetGear, Inc. (NASDAQ:NTGR). We will take a look at Aerie Pharmaceuticals Inc (NASDAQ:AERI), Arcos Dorados Holding Inc (NYSE:ARCO), Scientific Games Corp (NASDAQ:SGMS), and Evolent Health Inc (NYSE:EVH). This group of stocks’ market caps are similar to NTGR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AERI | 23 | 628236 | 0 |
| ARCO | 14 | 155551 | -4 |
| SGMS | 26 | 549206 | 1 |
| EVH | 14 | 107531 | 1 |
| Average | 19.25 | 360131 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $360 million. That figure was $56 million in NTGR’s case. Scientific Games Corp (NASDAQ:SGMS) is the most popular stock in this table. On the other hand Arcos Dorados Holding Inc (NYSE:ARCO) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks NetGear, Inc. (NASDAQ:NTGR) is even less popular than ARCO. Hedge funds dodged a bullet by taking a bearish stance towards NTGR. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately NTGR wasn’t nearly as popular as these 15 stock (hedge fund sentiment was very bearish); NTGR investors were disappointed as the stock returned -34.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
