How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding NICE Ltd (NASDAQ:NICE) and determine whether hedge funds had an edge regarding this stock.
NICE Ltd (NASDAQ:NICE) has seen a decrease in hedge fund sentiment recently. NICE Ltd (NASDAQ:NICE) was in 19 hedge funds' portfolios at the end of June. The all time high for this statistics is 22. There were 22 hedge funds in our database with NICE positions at the end of the first quarter. Our calculations also showed that NICE isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are dozens of tools stock market investors can use to size up stocks. A pair of the most under-the-radar tools are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the top fund managers can outclass their index-focused peers by a healthy amount (see the details here).
Robert Moses of RGM Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let's take a look at the latest hedge fund action surrounding NICE Ltd (NASDAQ:NICE).
What have hedge funds been doing with NICE Ltd (NASDAQ:NICE)?
Heading into the third quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in NICE a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, RGM Capital held the most valuable stake in NICE Ltd (NASDAQ:NICE), which was worth $133.8 million at the end of the third quarter. On the second spot was SQN Investors which amassed $68.7 million worth of shares. Junto Capital Management, Renaissance Technologies, and Arrowstreet Capital 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 Blackcrane Capital allocated the biggest weight to NICE Ltd (NASDAQ:NICE), around 9.35% of its 13F portfolio. RGM Capital is also relatively very bullish on the stock, earmarking 8.05 percent of its 13F equity portfolio to NICE.
Because NICE Ltd (NASDAQ:NICE) has witnessed falling interest from the smart money, it's easy to see that there exists a select few money managers that decided to sell off their entire stakes by the end of the second quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management sold off the biggest position of the "upper crust" of funds tracked by Insider Monkey, comprising about $4.4 million in stock. Ken Griffin's fund, Citadel Investment Group, also dropped its stock, about $2.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds by the end of the second quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as NICE Ltd (NASDAQ:NICE) but similarly valued. We will take a look at Imperial Oil Limited (NYSE:IMO), ArcelorMittal (NYSE:MT), Ingersoll Rand Inc. (NYSE:IR), Omnicom Group Inc. (NYSE:OMC), Xylem Inc (NYSE:XYL), NortonLifeLock Inc. (NASDAQ:NLOK), and Arch Capital Group Ltd. (NASDAQ:ACGL). This group of stocks' market values resemble NICE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IMO,11,21537,-2 MT,19,266529,6 IR,31,407546,-2 OMC,31,588433,0 XYL,22,504853,-5 NLOK,37,1370802,-5 ACGL,36,1077194,3 Average,26.7,605271,-0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $605 million. That figure was $490 million in NICE's case. NortonLifeLock Inc. (NASDAQ:NLOK) is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSE:IMO) is the least popular one with only 11 bullish hedge fund positions. NICE Ltd (NASDAQ:NICE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NICE is 43.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on NICE as the stock returned 20% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.