Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 9 percentage points since the end of the third quarter of 2018 as investors worried over the possible ramifications of rising interest rates and escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Navigant Consulting, Inc. (NYSE:NCI) and see how the stock is affected by the recent hedge fund activity.
Navigant Consulting, Inc. (NYSE:NCI) was in 15 hedge funds' portfolios at the end of the first quarter of 2019. NCI investors should be aware of a decrease in hedge fund sentiment recently. There were 17 hedge funds in our database with NCI holdings at the end of the previous quarter. Our calculations also showed that NCI isn't among the 30 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a look at the key hedge fund action regarding Navigant Consulting, Inc. (NYSE:NCI).
What have hedge funds been doing with Navigant Consulting, Inc. (NYSE:NCI)?
At Q1's end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the fourth quarter of 2018. By comparison, 16 hedge funds held shares or bullish call options in NCI 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, Pzena Investment Management was the largest shareholder of Navigant Consulting, Inc. (NYSE:NCI), with a stake worth $10.6 million reported as of the end of March. Trailing Pzena Investment Management was D E Shaw, which amassed a stake valued at $3.6 million. Gotham Asset Management, Arrowstreet Capital, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Navigant Consulting, Inc. (NYSE:NCI) has experienced bearish sentiment from the smart money, logic holds that there were a few hedge funds that elected to cut their entire stakes in the third quarter. Interestingly, Minhua Zhang's Weld Capital Management sold off the largest position of the "upper crust" of funds tracked by Insider Monkey, totaling an estimated $1 million in call options, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund sold off about $0.4 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Navigant Consulting, Inc. (NYSE:NCI) but similarly valued. These stocks are Monarch Casino & Resort, Inc. (NASDAQ:MCRI), Banco Latinoamericano de Comercio Exterior, S.A. (NYSE:BLX), ArcBest Corp (NASDAQ:ARCB), and Armada Hoffler Properties Inc (NYSE:AHH). All of these stocks' market caps resemble NCI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MCRI,10,130391,0 BLX,1,6043,0 ARCB,12,59795,2 AHH,11,59825,2 Average,8.5,64014,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $28 million in NCI's case. ArcBest Corp (NASDAQ:ARCB) is the most popular stock in this table. On the other hand Banco Latinoamericano de Comercio Exterior, S.A. (NYSE:BLX) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Navigant Consulting, Inc. (NYSE:NCI) 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. Hedge funds were also right about betting on NCI as the stock returned 20.4% during the same period 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.