Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the first 6 weeks of the fourth quarter we observed increased volatility and small-cap stocks underperformed the market. 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 Nu Skin Enterprises, Inc. (NYSE:NUS) to find out whether it was one of their high conviction long-term ideas.
Nu Skin Enterprises, Inc. (NYSE:NUS) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds' portfolios at the end of the third quarter of 2018. At the end of this article we will also compare NUS to other stocks including Umpqua Holdings Corp (NASDAQ:UMPQ), IBERIABANK Corporation (NASDAQ:IBKC), and Jabil Inc. (NYSE:JBL) to get a better sense of its popularity.
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' 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
We're going to go over the recent hedge fund action regarding Nu Skin Enterprises, Inc. (NYSE:NUS).
What have hedge funds been doing with Nu Skin Enterprises, Inc. (NYSE:NUS)?
At Q3's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, no change from the second quarter of 2018. By comparison, 16 hedge funds held shares or bullish call options in NUS heading into this year. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in Nu Skin Enterprises, Inc. (NYSE:NUS) was held by AQR Capital Management, which reported holding $126.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $67.2 million position. Other investors bullish on the company included D E Shaw, Arrowstreet Capital, and Point72 Asset Management.
Due to the fact that Nu Skin Enterprises, Inc. (NYSE:NUS) has experienced falling interest from the entirety of the hedge funds we track, it's safe to say that there was a specific group of funds that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, Noam Gottesman's GLG Partners sold off the biggest investment of the 700 funds watched by Insider Monkey, valued at close to $1.7 million in stock. Mike Vranos's fund, Ellington, also sold off its stock, about $0.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Nu Skin Enterprises, Inc. (NYSE:NUS) but similarly valued. We will take a look at Umpqua Holdings Corp (NASDAQ:UMPQ), IBERIABANK Corporation (NASDAQ:IBKC), Jabil Inc. (NYSE:JBL), and OneMain Holdings Inc (NYSE:OMF). All of these stocks' market caps are similar to NUS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UMPQ,20,302634,3 IBKC,21,387072,5 JBL,22,298289,1 OMF,26,318605,4 Average,22.25,326650,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $327 million. That figure was $301 million in NUS's case. OneMain Holdings Inc (NYSE:OMF) is the most popular stock in this table. On the other hand Umpqua Holdings Corp (NASDAQ:UMPQ) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Nu Skin Enterprises, Inc. (NYSE:NUS) is even less popular than UMPQ. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.