During the first half of the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by about 4 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) and see how the stock is affected by the recent hedge fund activity.
Is Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) a buy here? Hedge funds are becoming hopeful. The number of bullish hedge fund bets went up by 12 in recent months. Our calculations also showed that NCLH isn’t among the 30 most popular stocks among hedge funds. NCLH was in 41 hedge funds’ portfolios at the end of the third quarter of 2018. There were 29 hedge funds in our database with NCLH holdings at the end of the previous quarter.
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 the 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 18 percentage points since May 2014 through December 3, 2018 (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 analyze the key hedge fund action regarding Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH).
How have hedgies been trading Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH)?
At the end of the third quarter, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 41% from the second quarter of 2018. By comparison, 35 hedge funds held shares or bullish call options in NCLH heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) was held by Eminence Capital, which reported holding $179 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $105 million position. Other investors bullish on the company included Two Sigma Advisors, Capital Growth Management, and Roystone Capital Partners.
Now, key money managers were leading the bulls’ herd. Eminence Capital, managed by Ricky Sandler, created the biggest position in Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH). Eminence Capital had $179 million invested in the company at the end of the quarter. Richard McGuire’s Marcato Capital Management also made a $23 million investment in the stock during the quarter. The following funds were also among the new NCLH investors: Louis Bacon’s Moore Global Investments, Ken Grossman and Glen Schneider’s SG Capital Management, and Anand Parekh’s Alyeska Investment Group.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) but similarly valued. We will take a look at CF Industries Holdings, Inc. (NYSE:CF), Marvell Technology Group Ltd. (NASDAQ:MRVL), Targa Resources Corp (NYSE:TRGP), and Chipotle Mexican Grill, Inc. (NYSE:CMG). This group of stocks’ market valuations are closest to NCLH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CF | 33 | 1162426 | 3 |
| MRVL | 31 | 1899897 | -8 |
| TRGP | 21 | 1126979 | -1 |
| CMG | 33 | 2025165 | -6 |
| Average | 29.5 | 1554 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $1554 million. That figure was $1013 million in NCLH’s case. CF Industries Holdings, Inc. (NYSE:CF) is the most popular stock in this table. On the other hand Targa Resources Corp (NYSE:TRGP) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
