Is Nielsen Holdings plc (NLSN) Going to Burn These Hedge Funds?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Nielsen Holdings plc (NYSE:NLSN) and determine whether hedge funds skillfully traded this stock.

Is Nielsen Holdings plc (NYSE:NLSN) a sound investment now? Prominent investors were cutting their exposure. The number of long hedge fund bets dropped by 2 in recent months. Nielsen Holdings plc (NYSE:NLSN) was in 31 hedge funds’ portfolios at the end of June. The all time high for this statistics is 35. Our calculations also showed that NLSN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 33 hedge funds in our database with NLSN holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Singer of Elliott Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s take a glance at the new hedge fund action encompassing Nielsen Holdings plc (NYSE:NLSN).

What have hedge funds been doing with Nielsen Holdings plc (NYSE:NLSN)?

At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in NLSN over the last 20 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

More specifically, Windacre Partnership was the largest shareholder of Nielsen Holdings plc (NYSE:NLSN), with a stake worth $658 million reported as of the end of September. Trailing Windacre Partnership was Elliott Investment Management, which amassed a stake valued at $246.7 million. Ariel Investments, HBK Investments, and D E Shaw 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 Windacre Partnership allocated the biggest weight to Nielsen Holdings plc (NYSE:NLSN), around 19.76% of its 13F portfolio. Indaba Capital Management is also relatively very bullish on the stock, dishing out 10.12 percent of its 13F equity portfolio to NLSN.

Due to the fact that Nielsen Holdings plc (NYSE:NLSN) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of funds who sold off their entire stakes heading into Q3. Interestingly, Renaissance Technologies said goodbye to the largest stake of all the hedgies monitored by Insider Monkey, worth about $9.3 million in stock. Eli Cohen’s fund, Crescent Park Management, also dumped its stock, about $6.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Nielsen Holdings plc (NYSE:NLSN) but similarly valued. These stocks are Comerica Incorporated (NYSE:CMA), PLDT Inc. (NYSE:PHI), Ralph Lauren Corporation (NYSE:RL), Ares Management Corp (NYSE:ARES), Churchill Downs Incorporated (NASDAQ:CHDN), Sonoco Products Company (NYSE:SON), and First Solar, Inc. (NASDAQ:FSLR). This group of stocks’ market valuations resemble NLSN’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.7 hedge funds with bullish positions and the average amount invested in these stocks was $304 million. That figure was $1177 million in NLSN’s case. Comerica Incorporated (NYSE:CMA) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 5 bullish hedge fund positions. Nielsen Holdings plc (NYSE:NLSN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NLSN is 71.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately NLSN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NLSN were disappointed as the stock returned 3.8% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.