At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Nordstrom, Inc. (NYSE:JWN) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is Nordstrom, Inc. (NYSE:JWN) a sound investment today? Investors who are in the know were reducing their bets on the stock. The number of bullish hedge fund bets went down by 5 lately. Our calculations also showed that JWN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). JWN was in 25 hedge funds' portfolios at the end of the first quarter of 2020. There were 30 hedge funds in our database with JWN holdings at the end of the previous quarter. 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 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_673876" align="aligncenter" width="400"] John Overdeck of Two Sigma Advisors[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we're going to check out the fresh hedge fund action regarding Nordstrom, Inc. (NYSE:JWN).
Hedge fund activity in Nordstrom, Inc. (NYSE:JWN)
At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in JWN a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jacob Mitchell's Antipodes Partners has the largest position in Nordstrom, Inc. (NYSE:JWN), worth close to $14.3 million, accounting for 0.7% of its total 13F portfolio. Sitting at the No. 2 spot is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $12.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions contain Cliff Asness's AQR Capital Management, and John W. Rogers's Ariel Investments. In terms of the portfolio weights assigned to each position Pacifica Capital Investments allocated the biggest weight to Nordstrom, Inc. (NYSE:JWN), around 3.03% of its 13F portfolio. Stamos Capital is also relatively very bullish on the stock, designating 2.05 percent of its 13F equity portfolio to JWN.
Seeing as Nordstrom, Inc. (NYSE:JWN) has faced falling interest from the smart money, it's easy to see that there was a specific group of hedgies who sold off their full holdings heading into Q4. Intriguingly, Lee Ainslie's Maverick Capital dropped the largest stake of all the hedgies monitored by Insider Monkey, comprising close to $10.2 million in stock. Brian Scudieri's fund, Kehrs Ridge Capital, also sold off its stock, about $8.2 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 5 funds heading into Q4.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Nordstrom, Inc. (NYSE:JWN) but similarly valued. We will take a look at F.N.B. Corp (NYSE:FNB), Umpqua Holdings Corp (NASDAQ:UMPQ), TopBuild Corp (NYSE:BLD), and LendingTree, Inc (NASDAQ:TREE). This group of stocks' market values resemble JWN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FNB,24,63920,1 UMPQ,23,183885,7 BLD,20,79991,-9 TREE,21,74029,-5 Average,22,100456,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $73 million in JWN's case. F.N.B. Corp (NYSE:FNB) is the most popular stock in this table. On the other hand TopBuild Corp (NYSE:BLD) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Nordstrom, Inc. (NYSE:JWN) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately JWN wasn't nearly as popular as these 10 stocks and hedge funds that were betting on JWN were disappointed as the stock returned 1% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.