Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article we are going to take a look at smart money sentiment towards Nasdaq, Inc. (NASDAQ:NDAQ).
Hedge fund interest in Nasdaq, Inc. (NASDAQ:NDAQ) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Shinhan Financial Group Co., Ltd. (NYSE:SHG), AmerisourceBergen Corporation (NYSE:ABC), and Martin Marietta Materials, Inc. (NYSE:MLM) to gather more data points. Our calculations also showed that NDAQ isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the “next Amazon” in this video; again we are listening. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the fresh hedge fund action encompassing Nasdaq, Inc. (NASDAQ:NDAQ).
What does smart money think about Nasdaq, Inc. (NASDAQ:NDAQ)?
Heading into the first quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in NDAQ a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Two Sigma Advisors, managed by John Overdeck and David Siegel, holds the number one position in Nasdaq, Inc. (NASDAQ:NDAQ). Two Sigma Advisors has a $46.7 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Balyasny Asset Management, led by Dmitry Balyasny, holding a $19.3 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish encompass Renaissance Technologies, Ken Griffin’s Citadel Investment Group and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Sloane Robinson Investment Management allocated the biggest weight to Nasdaq, Inc. (NASDAQ:NDAQ), around 3.34% of its 13F portfolio. Cognios Capital is also relatively very bullish on the stock, setting aside 0.92 percent of its 13F equity portfolio to NDAQ.
Because Nasdaq, Inc. (NASDAQ:NDAQ) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedge funds that slashed their full holdings last quarter. Interestingly, Jeffrey Talpins’s Element Capital Management dropped the biggest stake of the 750 funds monitored by Insider Monkey, totaling close to $1.9 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund cut about $0.9 million worth. These bearish behaviors are interesting, 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 – not necessarily in the same industry as Nasdaq, Inc. (NASDAQ:NDAQ) but similarly valued. We will take a look at Shinhan Financial Group Co., Ltd. (NYSE:SHG), AmerisourceBergen Corporation (NYSE:ABC), Martin Marietta Materials, Inc. (NYSE:MLM), and Teleflex Incorporated (NYSE:TFX). This group of stocks’ market valuations are similar to NDAQ’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SHG | 3 | 8979 | -2 |
| ABC | 40 | 580579 | 2 |
| MLM | 52 | 2345404 | 9 |
| TFX | 32 | 936280 | 4 |
| Average | 31.75 | 967811 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $968 million. That figure was $181 million in NDAQ’s case. Martin Marietta Materials, Inc. (NYSE:MLM) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 3 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on NDAQ, though not to the same extent, as the stock returned 0% during the same time period and outperformed the market.
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.
