We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC).
Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) was in 9 hedge funds' portfolios at the end of the third quarter of 2019. NGVC investors should pay attention to a decrease in hedge fund sentiment lately. There were 12 hedge funds in our database with NGVC holdings at the end of the previous quarter. Our calculations also showed that NGVC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/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. 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. We also rely on the best performing hedge funds' buy/sell signals. Let's view the key hedge fund action encompassing Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC).
What does smart money think about Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC)?
Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in NGVC a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the largest position in Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC). Renaissance Technologies has a $4.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is David E. Shaw of D E Shaw, with a $2.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of Cliff Asness's AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC), around 0.05% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to NGVC.
Judging by the fact that Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of fund managers that decided to sell off their entire stakes heading into Q4. Intriguingly, Israel Englander's Millennium Management dumped the largest stake of the 750 funds tracked by Insider Monkey, worth close to $0.3 million in stock, and David Harding's Winton Capital Management was right behind this move, as the fund said goodbye to about $0.3 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 3 funds heading into Q4.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) but similarly valued. We will take a look at CBL & Associates Properties, Inc. (NYSE:CBL), Sportsman's Warehouse Holdings Inc (NASDAQ:SPWH), Select Bancorp, Inc. (NASDAQ:SLCT), and Northern Dynasty Minerals Ltd. (NYSE:NAK). This group of stocks' market values are closest to NGVC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBL,15,23460,6 SPWH,21,42790,5 SLCT,5,10328,1 NAK,5,5817,-1 Average,11.5,20599,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $13 million in NGVC's case. Sportsman's Warehouse Holdings Inc (NASDAQ:SPWH) is the most popular stock in this table. On the other hand Select Bancorp, Inc. (NASDAQ:SLCT) is the least popular one with only 5 bullish hedge fund positions. Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NGVC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NGVC investors were disappointed as the stock returned -5.7% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.