We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards NVIDIA Corporation (NASDAQ:NVDA) and determine whether hedge funds skillfully traded this stock.
NVIDIA Corporation (NASDAQ:NVDA) has seen a small decrease in hedge fund interest of late. This is kind of expected because hedge funds flocked into the stock during the first quarter as the NVDA’s stock was trading at a sharp discount. Now some of these hedge funds are cashing out. Nevertheless, our calculations also showed that NVDA managed to rank #27 in our list of the 30 most popular stocks among hedge funds (click for Q2 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.
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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Rajiv Jain of GQG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out ideas like this under-the-radar stock to identify the next tenbagger. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a gander at the latest hedge fund action encompassing NVIDIA Corporation (NASDAQ:NVDA).
Hedge fund activity in NVIDIA Corporation (NASDAQ:NVDA)
At second quarter’s end, a total of 92 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from one quarter earlier. On the other hand, there were a total of 45 hedge funds with a bullish position in NVDA a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in NVIDIA Corporation (NASDAQ:NVDA) was held by GQG Partners, which reported holding $1785.8 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $1315.4 million position. Other investors bullish on the company included Fisher Asset Management, D E Shaw, and Renaissance Technologies. In terms of the portfolio weights assigned to each position AlphaOne Capital Partners allocated the biggest weight to NVIDIA Corporation (NASDAQ:NVDA), around 11.46% of its 13F portfolio. Symmetry Peak Management is also relatively very bullish on the stock, earmarking 8.26 percent of its 13F equity portfolio to NVDA.
Due to the fact that NVIDIA Corporation (NASDAQ:NVDA) has faced a decline in interest from hedge fund managers, it’s safe to say that there is a sect of hedge funds who were dropping their full holdings last quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management sold off the largest investment of all the hedgies tracked by Insider Monkey, valued at close to $51.5 million in stock. Josh Resnick’s fund, Jericho Capital Asset Management, also dropped its stock, about $48.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to NVIDIA Corporation (NASDAQ:NVDA). These stocks are Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T), Adobe Inc. (NASDAQ:ADBE), Bank of America Corporation (NYSE:BAC), Paypal Holdings Inc (NASDAQ:PYPL), The Walt Disney Company (NYSE:DIS), and Tesla Inc. (NASDAQ:TSLA). All of these stocks’ market caps match NVDA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VZ | 68 | 2973925 | 0 |
| T | 57 | 1659928 | 0 |
| ADBE | 104 | 9651462 | -11 |
| BAC | 91 | 24357766 | -4 |
| PYPL | 144 | 11406883 | 26 |
| DIS | 105 | 6819839 | 3 |
| TSLA | 63 | 5560864 | 2 |
| Average | 90.3 | 8918667 | 2.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 90.3 hedge funds with bullish positions and the average amount invested in these stocks was $8919 million. That figure was $5548 million in NVDA’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand AT&T Inc. (NYSE:T) is the least popular one with only 57 bullish hedge fund positions. NVIDIA Corporation (NASDAQ:NVDA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NVDA is 51.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 28.2% in 2020 through August 24th but still beat the market by 20.6 percentage points. Hedge funds were also right about betting on NVDA as the stock returned 33.9% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
