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Hedge Fund Darlings vs. Norwegian Cruise Line Holdings Ltd (NCLH) In 2019

Debasis Saha

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds' favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) and compare its performance against hedge funds' favorite stocks.

Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) investors should be aware of a decrease in hedge fund sentiment recently. NCLH was in 30 hedge funds' portfolios at the end of September. There were 35 hedge funds in our database with NCLH positions at the end of the previous quarter. Our calculations also showed that NCLH 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).

Today there are tons of metrics market participants can use to grade stocks. A duo of the best metrics are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the best investment managers can outpace the S&P 500 by a healthy amount (see the details here).

[caption id="attachment_30621" align="alignnone" width="600"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his 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 recent hedge fund action regarding Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH).

Hedge fund activity in Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH)

At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in NCLH over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NCLH A Good Stock To Buy?

Among these funds, AQR Capital Management held the most valuable stake in Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH), which was worth $253.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $246.7 million worth of shares. HG Vora Capital Management, Arrowstreet Capital, and Marshall Wace 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 HG Vora Capital Management allocated the biggest weight to Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH), around 9.17% of its 13F portfolio. MD Sass is also relatively very bullish on the stock, setting aside 4.98 percent of its 13F equity portfolio to NCLH.

Judging by the fact that Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) has experienced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there exists a select few money managers that decided to sell off their entire stakes in the third quarter. At the top of the heap, Gregg Moskowitz's Interval Partners sold off the biggest stake of the 750 funds monitored by Insider Monkey, worth about $44.4 million in call options. Gregg Moskowitz's fund, Interval Partners, also dropped its call options, about $32.7 million worth. These moves are important to note, as total hedge fund interest dropped by 5 funds in the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) but similarly valued. These stocks are Open Text Corporation (NASDAQ:OTEX), Pinnacle West Capital Corporation (NYSE:PNW), DocuSign, Inc. (NASDAQ:DOCU), and AXA Equitable Holdings, Inc. (NYSE:EQH). This group of stocks' market values resemble NCLH's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OTEX,14,610442,-2 PNW,24,865074,1 DOCU,26,673817,0 EQH,21,1062610,-11 Average,21.25,802986,-3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $803 million. That figure was $1012 million in NCLH's case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand Open Text Corporation (NASDAQ:OTEX) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on NCLH, though not to the same extent, as the stock returned 38% during the same period and outperformed the market as well. 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.

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