Was The Smart Money Right About Nomad Foods Limited (NOMD)?

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 Nomad Foods Limited (NYSE:NOMD).

Nomad Foods Limited (NYSE:NOMD) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 34 hedge funds’ portfolios at the end of June. Our calculations also showed that NOMD isn’t among 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). 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 Landstar System, Inc. (NASDAQ:LSTR), II-VI, Inc. (NASDAQ:IIVI), and CAE, Inc. (NYSE:CAE) to gather more data points. Our calculations also showed that NOMD isn’t among 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Sahm Adrangi of Kerrisdale Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s review the recent hedge fund action regarding Nomad Foods Limited (NYSE:NOMD).

How have hedgies been trading Nomad Foods Limited (NYSE:NOMD)?

At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NOMD over the last 20 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in Nomad Foods Limited (NYSE:NOMD) was held by Renaissance Technologies, which reported holding $63.4 million worth of stock at the end of June. It was followed by Citadel Investment Group with a $62.8 million position. Other investors bullish on the company included Samlyn Capital, D E Shaw, and BlueDrive Global Investors. In terms of the portfolio weights assigned to each position BlueDrive Global Investors allocated the biggest weight to Nomad Foods Limited (NYSE:NOMD), around 12.91% of its 13F portfolio. AltraVue Capital is also relatively very bullish on the stock, dishing out 9.09 percent of its 13F equity portfolio to NOMD.

Because Nomad Foods Limited (NYSE:NOMD) has experienced declining sentiment from hedge fund managers, logic holds that there lies a certain “tier” of funds who were dropping their entire stakes last quarter. It’s worth mentioning that Gregg Moskowitz’s Interval Partners sold off the biggest investment of the 750 funds monitored by Insider Monkey, totaling close to $12.5 million in stock. Michael Hintze’s fund, CQS Cayman LP, also sold off its stock, about $6 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Nomad Foods Limited (NYSE:NOMD) but similarly valued. These stocks are Landstar System, Inc. (NASDAQ:LSTR), II-VI, Inc. (NASDAQ:IIVI), CAE, Inc. (NYSE:CAE), Noble Energy, Inc. (NASDAQ:NBL), Switch, Inc. (NYSE:SWCH), Grand Canyon Education Inc (NASDAQ:LOPE), and Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN). This group of stocks’ market caps are closest to NOMD’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $341 million. That figure was $438 million in NOMD’s case. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 14 bullish hedge fund positions. Nomad Foods Limited (NYSE:NOMD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NOMD is 65. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on NOMD as the stock returned 13.1% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.