We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like NI Holdings, Inc. (NASDAQ:NODK).
NI Holdings, Inc. (NASDAQ:NODK) has seen an increase in hedge fund sentiment recently. NODK was in 7 hedge funds' portfolios at the end of the third quarter of 2019. There were 6 hedge funds in our database with NODK holdings at the end of the previous quarter. Our calculations also showed that NODK 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_728717" align="aligncenter" width="1613"] Roger Ibbotson of Zebra Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. 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 already gained 20 percent. Keeping this in mind we're going to go over the latest hedge fund action regarding NI Holdings, Inc. (NASDAQ:NODK).
How have hedgies been trading NI Holdings, Inc. (NASDAQ:NODK)?
At Q3's end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NODK over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Newtyn Management was the largest shareholder of NI Holdings, Inc. (NASDAQ:NODK), with a stake worth $9.9 million reported as of the end of September. Trailing Newtyn Management was MFP Investors, which amassed a stake valued at $8 million. AWH Capital, Minerva Advisors, and Renaissance Technologies 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 AWH Capital allocated the biggest weight to NI Holdings, Inc. (NASDAQ:NODK), around 4.72% of its 13F portfolio. Minerva Advisors is also relatively very bullish on the stock, setting aside 1.46 percent of its 13F equity portfolio to NODK.
As one would reasonably expect, some big names were breaking ground themselves. Zebra Capital Management, managed by Roger Ibbotson, established the most valuable position in NI Holdings, Inc. (NASDAQ:NODK). Zebra Capital Management had $0.2 million invested in the company at the end of the quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as NI Holdings, Inc. (NASDAQ:NODK) but similarly valued. These stocks are CAI International Inc (NYSE:CAI), Del Taco Restaurants Inc (NASDAQ:TACO), Bloom Energy Corporation (NYSE:BE), and BioDelivery Sciences International, Inc. (NASDAQ:BDSI). This group of stocks' market valuations are closest to NODK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CAI,12,106428,-2 TACO,13,29666,1 BE,14,20615,3 BDSI,18,109364,2 Average,14.25,66518,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $26 million in NODK's case. BioDelivery Sciences International, Inc. (NASDAQ:BDSI) is the most popular stock in this table. On the other hand CAI International Inc (NYSE:CAI) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks NI Holdings, Inc. (NASDAQ:NODK) is even less popular than CAI. Hedge funds dodged a bullet by taking a bearish stance towards NODK. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NODK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NODK investors were disappointed as the stock returned -2.3% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.