Nasdaq, Inc. (NDAQ): Hedge Funds Are Nibbling

In this article we will check out the progression of hedge fund sentiment towards Nasdaq, Inc. (NASDAQ:NDAQ) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Nasdaq, Inc. (NASDAQ:NDAQ) a healthy stock for your portfolio? The smart money is buying. The number of bullish hedge fund bets advanced by 1 recently. 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.

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 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

Bruce Kovner of Caxton Associates LP

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the fresh hedge fund action surrounding Nasdaq, Inc. (NASDAQ:NDAQ).

How have hedgies been trading Nasdaq, Inc. (NASDAQ:NDAQ)?

At the end of the first quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in NDAQ a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

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, setting aside 0.84 percent of its 13F equity portfolio to NDAQ.

As one would reasonably expect, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest 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 now review hedge fund activity in other stocks – not necessarily in the same industry as Nasdaq, Inc. (NASDAQ:NDAQ) but similarly valued. 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 values are closest to NDAQ’s market value.

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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on NDAQ as the stock returned 24.8% during the second quarter and outperformed the market by an even larger margin.

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