There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Nautilus, Inc. (NYSE:NLS).
Is Nautilus, Inc. (NYSE:NLS) a marvelous stock to buy now? Investors who are in the know are getting less bullish. The number of bullish hedge fund positions were cut by 3 lately. Our calculations also showed that nls isn't among the 30 most popular stocks among hedge funds. NLS was in 13 hedge funds' portfolios at the end of March. There were 16 hedge funds in our database with NLS holdings at the end of the previous quarter.
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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to go over the key hedge fund action regarding Nautilus, Inc. (NYSE:NLS).
How have hedgies been trading Nautilus, Inc. (NYSE:NLS)?
At Q1's end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the fourth quarter of 2018. On the other hand, there were a total of 13 hedge funds with a bullish position in NLS 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.
More specifically, Royce & Associates was the largest shareholder of Nautilus, Inc. (NYSE:NLS), with a stake worth $6.8 million reported as of the end of March. Trailing Royce & Associates was AQR Capital Management, which amassed a stake valued at $4.5 million. D E Shaw, Millennium Management, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Because Nautilus, Inc. (NYSE:NLS) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedgies that slashed their full holdings in the third quarter. It's worth mentioning that David Park's Headlands Capital said goodbye to the largest position of the 700 funds watched by Insider Monkey, valued at an estimated $12.6 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund dumped about $0.4 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 3 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to Nautilus, Inc. (NYSE:NLS). We will take a look at Hexindai Inc. (NASDAQ:HX), Gaia, Inc. (NASDAQ:GAIA), DNB Financial Corporation (NASDAQ:DNBF), and Harvard Bioscience, Inc. (NASDAQ:HBIO). This group of stocks' market valuations are closest to NLS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HX,4,3277,0 GAIA,7,11548,-1 DNBF,4,10838,2 HBIO,10,12178,1 Average,6.25,9460,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $25 million in NLS's case. Harvard Bioscience, Inc. (NASDAQ:HBIO) is the most popular stock in this table. On the other hand Hexindai Inc. (NASDAQ:HX) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Nautilus, Inc. (NYSE:NLS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately NLS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NLS were disappointed as the stock returned -58.5% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.