We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Nutrien Ltd. (NYSE:NTR).
Hedge fund interest in Nutrien Ltd. (NYSE:NTR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare NTR to other stocks including Cummins Inc. (NYSE:CMI), PACCAR Inc (NASDAQ:PCAR), and SBA Communications Corporation (NASDAQ:SBAC) to get a better sense of its popularity.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Joel Greenblatt of Gotham Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the fresh hedge fund action regarding Nutrien Ltd. (NYSE:NTR).
How are hedge funds trading Nutrien Ltd. (NYSE:NTR)?
Heading into the first quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in NTR over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in Nutrien Ltd. (NYSE:NTR). Arrowstreet Capital has a $96.9 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, founded by Jim Simons, holding a $45.6 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish include Phill Gross and Robert Atchinson’s Adage Capital Management, Joseph Sirdevan’s Galibier Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Galibier Capital Management allocated the biggest weight to Nutrien Ltd. (NYSE:NTR), around 10.18% of its 13F portfolio. Moerus Capital Management is also relatively very bullish on the stock, setting aside 9.02 percent of its 13F equity portfolio to NTR.
Because Nutrien Ltd. (NYSE:NTR) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there exists a select few hedge funds that elected to cut their positions entirely by the end of the third quarter. It’s worth mentioning that Joseph A. Jolson’s Harvest Capital Strategies cut the biggest investment of the 750 funds monitored by Insider Monkey, comprising close to $4 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also sold off its stock, about $2.5 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Nutrien Ltd. (NYSE:NTR). We will take a look at Cummins Inc. (NYSE:CMI), PACCAR Inc (NASDAQ:PCAR), SBA Communications Corporation (NASDAQ:SBAC), and Edison International (NYSE:EIX). This group of stocks’ market valuations are similar to NTR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMI | 39 | 768817 | 5 |
| PCAR | 36 | 216367 | 8 |
| SBAC | 45 | 1560377 | 4 |
| EIX | 34 | 1611946 | 6 |
| Average | 38.5 | 1039377 | 5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.5 hedge funds with bullish positions and the average amount invested in these stocks was $1039 million. That figure was $409 million in NTR’s case. SBA Communications Corporation (NASDAQ:SBAC) is the most popular stock in this table. On the other hand Edison International (NYSE:EIX) is the least popular one with only 34 bullish hedge fund positions. Compared to these stocks Nutrien Ltd. (NYSE:NTR) is even less popular than EIX. Hedge funds dodged a bullet by taking a bearish stance towards NTR. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately NTR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NTR investors were disappointed as the stock returned -36% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
