Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of Nutrien Ltd. (NYSE:NTR) based on that data.
Nutrien Ltd. (NYSE:NTR) shareholders have witnessed an increase in support from the world’s most elite money managers of late. Our calculations also showed that NTR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to take a glance at the latest hedge fund action encompassing Nutrien Ltd. (NYSE:NTR).
How have hedgies been trading Nutrien Ltd. (NYSE:NTR)?
At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the second quarter of 2019. On the other hand, there were a total of 35 hedge funds with a bullish position in NTR a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in Nutrien Ltd. (NYSE:NTR) was held by D E Shaw, which reported holding $36.5 million worth of stock at the end of September. It was followed by Moerus Capital Management with a $32.1 million position. Other investors bullish on the company included Adage Capital Management, McKinley Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Moerus Capital Management allocated the biggest weight to Nutrien Ltd. (NYSE:NTR), around 10.95% of its 13F portfolio. Horseman Capital Management is also relatively very bullish on the stock, designating 6.7 percent of its 13F equity portfolio to NTR.
Consequently, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Nutrien Ltd. (NYSE:NTR). Arrowstreet Capital had $7.8 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $7.6 million position during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace, Noam Gottesman’s GLG Partners, and BP Capital.
Let’s check out hedge fund activity in other stocks similar to Nutrien Ltd. (NYSE:NTR). We will take a look at Alcon Inc. (NYSE:ALC), Canon Inc. (NYSE:CAJ), Motorola Solutions Inc (NYSE:MSI), and Nokia Corporation (NYSE:NOK). This group of stocks’ market valuations resemble NTR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ALC | 22 | 482231 | 4 |
| CAJ | 8 | 95141 | 2 |
| MSI | 33 | 932771 | 8 |
| NOK | 23 | 417397 | -1 |
| Average | 21.5 | 481885 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $482 million. That figure was $175 million in NTR’s case. Motorola Solutions Inc (NYSE:MSI) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 8 bullish hedge fund positions. Nutrien Ltd. (NYSE:NTR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately NTR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NTR were disappointed as the stock returned 5.6% in 2019 and trailed 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 many of these stocks already outperformed the market so far this year.
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.
