Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Neustar Inc (NYSE:NSR).
Is Neustar Inc (NYSE:NSR) an attractive investment today? It looks like money managers may be in a slightly pessimistic mood, as the number of hedge funds from our database bullish on the stock inched down by one during the third quarter. At the end of this article we will also compare NSR to other stocks including Time Inc (NYSE:TIME), Globant SA (NYSE:GLOB), and Nationstar Mortgage Holdings Inc (NYSE:NSM) to get a better sense of its popularity.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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Keeping this in mind, let’s take a glance at the fresh action regarding Neustar Inc (NYSE:NSR).
How are hedge funds trading Neustar Inc (NYSE:NSR)?
At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, down by 6% over the quarter. Below, you can check out the change in hedge fund sentiment towards NSR over the last five quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Cliff Asness’ AQR Capital Management has the number one position in Neustar Inc (NYSE:NSR), worth close to $31.6 million, corresponding to less than 0.1%% of its total 13F portfolio. On AQR Capital Management’s heels is Goodnow Investment Group, led by Edward Goodnow, holding a $15.8 million position; 3.8% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions contain D. E. Shaw’s D E Shaw, Ken Fisher’s Fisher Asset Management, and Renaissance Technologies, one of the largest hedge funds in the world. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Because Neustar Inc (NYSE:NSR) has encountered declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of hedge funds that decided to sell off their entire stakes last quarter. It’s worth mentioning that Spencer M. Waxman’s Shannon River Fund Management cut the biggest stake of all the investors monitored by Insider Monkey, valued at about $9.4 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dropped its stock, about $2.4 million worth.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Neustar Inc (NYSE:NSR) but similarly valued. These stocks are Time Inc (NYSE:TIME), Globant SA (NYSE:GLOB), Nationstar Mortgage Holdings Inc (NYSE:NSM), and BlackRock Credit All Inc Trust IV (NYSE:BTZ). All of these stocks’ market caps are similar to NSR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TIME | 21 | 147012 | 3 |
| GLOB | 10 | 55050 | 2 |
| NSM | 13 | 212102 | -2 |
| BTZ | 3 | 1574 | 1 |
As you can see these stocks had an average of 12 funds with bullish positions and the average amount invested in these stocks was $104 million, versus $96 million in NSR’s case. Time Inc (NYSE:TIME) is the most popular stock in this table. On the other hand BlackRock Credit All Inc Trust IV (NYSE:BTZ) is the least popular one with only three funds holding shares. Neustar Inc (NYSE:NSR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Time Inc (NYSE:TIME) might be a better candidate to consider taking a long position in.
Disclosure: none
