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Hedge Funds Are Selling Nutrien Ltd. (NTR)

Asma UL Husna

Does Nutrien Ltd. (NYSE:NTR) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Is Nutrien Ltd. (NYSE:NTR) a sound investment right now? Hedge funds are selling. The number of bullish hedge fund bets were cut by 3 in recent months. Our calculations also showed that NTR isn't among the 30 most popular stocks among hedge funds (see the video below). NTR was in 22 hedge funds' portfolios at the end of June. There were 25 hedge funds in our database with NTR positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

NTR_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the recent hedge fund action regarding Nutrien Ltd. (NYSE:NTR).

What have hedge funds been doing with Nutrien Ltd. (NYSE:NTR)?

At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NTR over the last 16 quarters. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

William Harnisch

When looking at the institutional investors followed by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the most valuable position in Nutrien Ltd. (NYSE:NTR). D E Shaw has a $81.5 million position in the stock, comprising 0.1% of its 13F portfolio. On D E Shaw's heels is Moerus Capital Management, managed by Amit Wadhwaney, which holds a $34.2 million position; 10.6% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism comprise Robert B. Gillam's McKinley Capital Management, Daniel Lascano's Lomas Capital Management and John Horseman's Horseman Capital Management.

Judging by the fact that Nutrien Ltd. (NYSE:NTR) has experienced a decline in interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of funds who sold off their entire stakes heading into Q3. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management dumped the largest investment of all the hedgies followed by Insider Monkey, valued at an estimated $20.6 million in stock. Alexander Mitchell's fund, Scopus Asset Management, also dumped its stock, about $18.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds heading into Q3.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Nutrien Ltd. (NYSE:NTR) but similarly valued. We will take a look at Xcel Energy Inc (NASDAQ:XEL), Mercadolibre Inc (NASDAQ:MELI), Alcon Inc. (NYSE:ALC), and Electronic Arts Inc. (NASDAQ:EA). This group of stocks' market values are similar to NTR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XEL,18,496716,2 MELI,52,3846834,11 ALC,18,454484,18 EA,59,2605780,-2 Average,36.75,1850954,7.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.75 hedge funds with bullish positions and the average amount invested in these stocks was $1851 million. That figure was $212 million in NTR's case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Xcel Energy Inc (NASDAQ:XEL) is the least popular one with only 18 bullish hedge fund positions. Nutrien Ltd. (NYSE:NTR) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NTR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NTR investors were disappointed as the stock returned -5.8% during the third 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 many of these stocks already outperformed the market so far in 2019.

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

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