How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Nomura Holdings, Inc. (NYSE:NMR).
Is Nomura Holdings, Inc. (NYSE:NMR) a buy right now? Investors who are in the know are taking a pessimistic view. The number of bullish hedge fund positions fell by 2 recently. Our calculations also showed that NMR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a look at the latest hedge fund action regarding Nomura Holdings, Inc. (NYSE:NMR).
What have hedge funds been doing with Nomura Holdings, Inc. (NYSE:NMR)?
At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 2 hedge funds with a bullish position in NMR a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Nomura Holdings, Inc. (NYSE:NMR) was held by LMR Partners, which reported holding $9.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $6.3 million position. Other investors bullish on the company included D E Shaw, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position LMR Partners allocated the biggest weight to Nomura Holdings, Inc. (NYSE:NMR), around 0.48% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to NMR.
Due to the fact that Nomura Holdings, Inc. (NYSE:NMR) has faced a decline in interest from the smart money, logic holds that there is a sect of hedge funds that decided to sell off their entire stakes heading into Q4. It’s worth mentioning that Ken Fisher’s Fisher Asset Management cut the largest investment of all the hedgies followed by Insider Monkey, totaling close to $2.2 million in stock, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital was right behind this move, as the fund dumped about $0.1 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 2 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Nomura Holdings, Inc. (NYSE:NMR) but similarly valued. We will take a look at Korea Electric Power Corporation (NYSE:KEP), KB Financial Group, Inc. (NYSE:KB), Freeport-McMoRan Inc. (NYSE:FCX), and Seattle Genetics, Inc. (NASDAQ:SGEN). All of these stocks’ market caps resemble NMR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KEP | 6 | 43753 | -1 |
| KB | 7 | 45753 | -2 |
| FCX | 37 | 1012669 | 4 |
| SGEN | 27 | 4587575 | 10 |
| Average | 19.25 | 1422438 | 2.75 |
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 $1422 million. That figure was $25 million in NMR’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Korea Electric Power Corporation (NYSE:KEP) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Nomura Holdings, Inc. (NYSE:NMR) is even less popular than KEP. Hedge funds clearly dropped the ball on NMR as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on NMR as the stock returned 20.7% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
