Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Nautilus, Inc. (NYSE:NLS) to find out whether it was one of their high conviction long-term ideas.
Is Nautilus, Inc. (NYSE:NLS) an excellent investment right now? Investors who are in the know are becoming less confident. The number of bullish hedge fund positions shrunk by 1 lately. Our calculations also showed that NLS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). NLS was in 13 hedge funds’ portfolios at the end of the third quarter of 2019. There were 14 hedge funds in our database with NLS positions at the end of the previous quarter.
Video: Click the image to 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 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.
Michael Platt of BlueCrest Capital Mgmt.
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to analyze the recent hedge fund action regarding Nautilus, Inc. (NYSE:NLS).
How have hedgies been trading Nautilus, Inc. (NYSE:NLS)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in NLS a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Nautilus, Inc. (NYSE:NLS) was held by D E Shaw, which reported holding $2.4 million worth of stock at the end of September. It was followed by Millennium Management with a $1.7 million position. Other investors bullish on the company included Citadel Investment Group, Skylands Capital, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Skylands Capital allocated the biggest weight to Nautilus, Inc. (NYSE:NLS), around 0.1% of its 13F portfolio. Engine Capital is also relatively very bullish on the stock, dishing out 0.02 percent of its 13F equity portfolio to NLS.
Because Nautilus, Inc. (NYSE:NLS) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of funds that decided to sell off their entire stakes heading into Q4. Intriguingly, Chuck Royce’s Royce & Associates cut the largest stake of the 750 funds followed by Insider Monkey, valued at about $1.3 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund cut about $0.5 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Nautilus, Inc. (NYSE:NLS) but similarly valued. These stocks are RCM Technologies, Inc. (NASDAQ:RCMT), Mitcham Industries, Inc. (NASDAQ:MIND), Innovate Biopharmaceuticals, Inc. (NASDAQ:INNT), and Retractable Technologies, Inc. (NYSE:RVP). This group of stocks’ market values match NLS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RCMT | 3 | 2784 | 1 |
| MIND | 4 | 10485 | 1 |
| INNT | 1 | 1336 | -1 |
| RVP | 1 | 990 | -1 |
| Average | 2.25 | 3899 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.25 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $7 million in NLS’s case. Mitcham Industries, Inc. (NASDAQ:MIND) is the most popular stock in this table. On the other hand Innovate Biopharmaceuticals, Inc. (NASDAQ:INNT) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Nautilus, Inc. (NYSE:NLS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on NLS, though not to the same extent, as the stock returned 6.7% during the fourth quarter (through the end of November) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
