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 Nasdaq, Inc. (NASDAQ:NDAQ) and determine whether hedge funds had an edge regarding this stock.
Nasdaq, Inc. (NASDAQ:NDAQ) investors should pay attention to an increase in hedge fund interest in recent months. NDAQ was in 26 hedge funds’ portfolios at the end of March. There were 25 hedge funds in our database with NDAQ positions at the end of the previous quarter. Our calculations also showed that NDAQ isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
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 58 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.
Donald Sussman of Paloma Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now we’re going to take a gander at the key hedge fund action surrounding Nasdaq, Inc. (NASDAQ:NDAQ).
How have hedgies been trading Nasdaq, Inc. (NASDAQ:NDAQ)?
At Q1’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NDAQ over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, Two Sigma Advisors held the most valuable stake in Nasdaq, Inc. (NASDAQ:NDAQ), which was worth $43.7 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $12.2 million worth of shares. Arrowstreet Capital, Renaissance Technologies, 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 Lee Capital Management allocated the biggest weight to Nasdaq, Inc. (NASDAQ:NDAQ), around 3.67% of its 13F portfolio. Cognios Capital is also relatively very bullish on the stock, designating 0.84 percent of its 13F equity portfolio to NDAQ.
As industrywide interest jumped, key money managers have jumped into Nasdaq, Inc. (NASDAQ:NDAQ) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Nasdaq, Inc. (NASDAQ:NDAQ). Arrowstreet Capital had $10.7 million invested in the company at the end of the quarter. Thomas Lee’s Lee Capital Management also made a $4.4 million investment in the stock during the quarter. The other funds with brand new NDAQ positions are Donald Sussman’s Paloma Partners, Bruce Kovner’s Caxton Associates LP, and Greg Eisner’s Engineers Gate Manager.
Let’s check out hedge fund activity in other stocks similar to Nasdaq, Inc. (NASDAQ:NDAQ). These stocks are Old Dominion Freight Line, Inc. (NASDAQ:ODFL), Corning Incorporated (NYSE:GLW), Arista Networks Inc (NYSE:ANET), and Arthur J. Gallagher & Co. (NYSE:AJG). This group of stocks’ market caps are similar to NDAQ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ODFL | 33 | 347639 | -1 |
| GLW | 30 | 106293 | -5 |
| ANET | 24 | 470614 | -2 |
| AJG | 28 | 373347 | -3 |
| Average | 28.75 | 324473 | -2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $324 million. That figure was $112 million in NDAQ’s case. Old Dominion Freight Line, Inc. (NASDAQ:ODFL) is the most popular stock in this table. On the other hand Arista Networks Inc (NYSE:ANET) is the least popular one with only 24 bullish hedge fund positions. Nasdaq, Inc. (NASDAQ:NDAQ) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on NDAQ as the stock returned 26.3% during the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
