Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.
Nielsen Holdings plc (NYSE:NLSN) was in 33 hedge funds' portfolios at the end of March. NLSN has experienced a decrease in hedge fund interest of late. There were 35 hedge funds in our database with NLSN positions at the end of the previous quarter. Our calculations also showed that nlsn isn't among the 30 most popular stocks among hedge funds.
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.
Let's check out the latest hedge fund action surrounding Nielsen Holdings plc (NYSE:NLSN).
Hedge fund activity in Nielsen Holdings plc (NYSE:NLSN)
At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in NLSN a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Windacre Partnership was the largest shareholder of Nielsen Holdings plc (NYSE:NLSN), with a stake worth $409.9 million reported as of the end of March. Trailing Windacre Partnership was Elliott Management, which amassed a stake valued at $331.4 million. Ariel Investments, Deccan Value Advisors, and Omega Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Nielsen Holdings plc (NYSE:NLSN) has faced a decline in interest from the aggregate hedge fund industry, it's easy to see that there was a specific group of hedgies that elected to cut their positions entirely heading into Q3. Intriguingly, Glenn Greenberg's Brave Warrior Capital dumped the largest investment of all the hedgies watched by Insider Monkey, valued at about $60.2 million in stock. John Paulson's fund, Paulson & Co, also sold off its stock, about $31.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Nielsen Holdings plc (NYSE:NLSN) but similarly valued. We will take a look at LINE Corporation (NYSE:LN), Brown & Brown, Inc. (NYSE:BRO), WEX Inc (NYSE:WEX), and Gaming and Leisure Properties Inc (NASDAQ:GLPI). This group of stocks' market valuations resemble NLSN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LN,5,50743,1 BRO,17,691830,-3 WEX,30,546702,-2 GLPI,27,945964,0 Average,19.75,558810,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $559 million. That figure was $1273 million in NLSN's case. WEX Inc (NYSE:WEX) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Nielsen Holdings plc (NYSE:NLSN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately NLSN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NLSN were disappointed as the stock returned -5.5% 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.