Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards National Oilwell Varco, Inc. (NYSE:NOV).
Is National Oilwell Varco, Inc. (NYSE:NOV) a buy here? Money managers are buying. The number of long hedge fund positions advanced by 1 lately. Our calculations also showed that NOV 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.
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 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.
[caption id="attachment_27676" align="aligncenter" width="355"] Israel Englander of Millennium Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to analyze the latest hedge fund action encompassing National Oilwell Varco, Inc. (NYSE:NOV).
How have hedgies been trading National Oilwell Varco, Inc. (NYSE:NOV)?
Heading into the fourth quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NOV over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Pzena Investment Management was the largest shareholder of National Oilwell Varco, Inc. (NYSE:NOV), with a stake worth $582.7 million reported as of the end of September. Trailing Pzena Investment Management was Lyrical Asset Management, which amassed a stake valued at $106.6 million. Millennium Management, Balyasny Asset Management, and Citadel Investment Group 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 Mountain Lake Investment Management allocated the biggest weight to National Oilwell Varco, Inc. (NYSE:NOV), around 6.97% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, designating 3.17 percent of its 13F equity portfolio to NOV.
As aggregate interest increased, key hedge funds were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in National Oilwell Varco, Inc. (NYSE:NOV). Balyasny Asset Management had $32.7 million invested in the company at the end of the quarter. Todd J. Kantor's Encompass Capital Advisors also initiated a $15.7 million position during the quarter. The following funds were also among the new NOV investors: Vince Maddi and Shawn Brennan's SIR Capital Management, David Costen Haley's HBK Investments, and Jeffrey Talpins's Element Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as National Oilwell Varco, Inc. (NYSE:NOV) but similarly valued. We will take a look at Under Armour Inc (NYSE:UA), News Corp (NASDAQ:NWSA), Coupa Software Incorporated (NASDAQ:COUP), and Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE:SBS). This group of stocks' market caps are similar to NOV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UA,32,921157,-6 NWSA,30,428964,7 COUP,55,2562874,-2 SBS,11,372148,-1 Average,32,1071286,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1071 million. That figure was $894 million in NOV's case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE:SBS) is the least popular one with only 11 bullish hedge fund positions. National Oilwell Varco, Inc. (NYSE:NOV) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on NOV, though not to the same extent, as the stock returned 6.4% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.