We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 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 National CineMedia, Inc. (NASDAQ:NCMI).
National CineMedia, Inc. (NASDAQ:NCMI) was in 16 hedge funds' portfolios at the end of the second quarter of 2019. NCMI has experienced a decrease in activity from the world's largest hedge funds recently. There were 18 hedge funds in our database with NCMI positions at the end of the previous quarter. Our calculations also showed that NCMI isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 key hedge fund action regarding National CineMedia, Inc. (NASDAQ:NCMI).
How are hedge funds trading National CineMedia, Inc. (NASDAQ:NCMI)?
At the end of the second quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NCMI over the last 16 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Joe Milano's Greenhouse Funds has the biggest position in National CineMedia, Inc. (NASDAQ:NCMI), worth close to $17.1 million, accounting for 3.7% of its total 13F portfolio. Coming in second is Bill Miller of Miller Value Partners, with a $7.2 million position; 0.3% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism comprise Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Israel Englander's Millennium Management.
Since National CineMedia, Inc. (NASDAQ:NCMI) has witnessed declining sentiment from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of money managers that decided to sell off their entire stakes in the second quarter. Intriguingly, Charles Paquelet's Skylands Capital sold off the largest position of the "upper crust" of funds followed by Insider Monkey, worth an estimated $0.6 million in stock, and David Costen Haley's HBK Investments was right behind this move, as the fund cut about $0.5 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds in the second quarter.
Let's now take a look at hedge fund activity in other stocks similar to National CineMedia, Inc. (NASDAQ:NCMI). We will take a look at Infinera Corporation (NASDAQ:INFN), Puxin Limited (NYSE:NEW), Mercantile Bank Corporation (NASDAQ:MBWM), and B. Riley Financial, Inc. (NASDAQ:RILY). All of these stocks' market caps are closest to NCMI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INFN,11,89333,-8 NEW,3,4686,1 MBWM,7,28326,0 RILY,10,106495,0 Average,7.75,57210,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $40 million in NCMI's case. Infinera Corporation (NASDAQ:INFN) is the most popular stock in this table. On the other hand Puxin Limited (NYSE:NEW) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks National CineMedia, Inc. (NASDAQ:NCMI) is more popular among hedge funds. 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. Hedge funds were also right about betting on NCMI as the stock returned 28.2% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.