U.S. Markets closed

How Did Nutanix, Inc. (NTNX) Compare Against Hedge Fund Darlings in 2019?

Reymerlyn Martin

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds' top 3 stock picks returned 45.7% last year and beat the S&P 500 ETFs by more than 14 percentage points. That's a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Nutanix, Inc. (NASDAQ:NTNX) has seen a decrease in hedge fund interest lately. Our calculations also showed that NTNX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 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 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.

[caption id="attachment_339739" align="aligncenter" width="600"] Ricky Sandler of Eminence Capital[/caption]

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let's check out the key hedge fund action encompassing Nutanix, Inc. (NASDAQ:NTNX).

What does smart money think about Nutanix, Inc. (NASDAQ:NTNX)?

At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. By comparison, 39 hedge funds held shares or bullish call options in NTNX a year ago. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Among these funds, Eminence Capital held the most valuable stake in Nutanix, Inc. (NASDAQ:NTNX), which was worth $141.7 million at the end of the third quarter. On the second spot was Millennium Management which amassed $30.5 million worth of shares. Isomer Partners, Altimeter Capital Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Isomer Partners allocated the biggest weight to Nutanix, Inc. (NASDAQ:NTNX), around 8.48% of its 13F portfolio. Kerrisdale Capital is also relatively very bullish on the stock, earmarking 2.61 percent of its 13F equity portfolio to NTNX.

Seeing as Nutanix, Inc. (NASDAQ:NTNX) has experienced falling interest from hedge fund managers, it's easy to see that there were a few money managers who sold off their full holdings in the third quarter. At the top of the heap, Renaissance Technologies dropped the largest position of the 750 funds tracked by Insider Monkey, worth an estimated $13.2 million in stock. Leon Shaulov's fund, Maplelane Capital, also sold off its stock, about $9.1 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds in the third quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Nutanix, Inc. (NASDAQ:NTNX) but similarly valued. These stocks are Companhia Energetica de Minas Gerais (NYSE:CIG), Choice Hotels International, Inc. (NYSE:CHH), Southwest Gas Holdings, Inc. (NYSE:SWX), and MasTec, Inc. (NYSE:MTZ). This group of stocks' market valuations match NTNX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIG,8,54517,0 CHH,20,171880,1 SWX,20,252769,4 MTZ,32,208174,4 Average,20,171835,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $172 million. That figure was $321 million in NTNX's case. MasTec, Inc. (NYSE:MTZ) is the most popular stock in this table. On the other hand Companhia Energetica de Minas Gerais (NYSE:CIG) is the least popular one with only 8 bullish hedge fund positions. Nutanix, Inc. (NASDAQ:NTNX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately NTNX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NTNX were disappointed as the stock returned -24.8% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

Related Content