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 Nordstrom, Inc. (NYSE:JWN).
Nordstrom, Inc. (NYSE:JWN) was in 23 hedge funds' portfolios at the end of the fourth quarter of 2018. JWN has experienced a decrease in activity from the world's largest hedge funds in recent months. There were 26 hedge funds in our database with JWN positions at the end of the previous quarter. Our calculations also showed that JWN isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's analyze the key hedge fund action surrounding Nordstrom, Inc. (NYSE:JWN).
What does the smart money think about Nordstrom, Inc. (NYSE:JWN)?
Heading into the first quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards JWN over the last 14 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Nordstrom, Inc. (NYSE:JWN) was held by Millennium Management, which reported holding $63 million worth of stock at the end of September. It was followed by AQR Capital Management with a $42.3 million position. Other investors bullish on the company included Two Sigma Advisors, Ariel Investments, and D E Shaw.
Because Nordstrom, Inc. (NYSE:JWN) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of funds who were dropping their positions entirely heading into Q3. It's worth mentioning that Jeffrey Talpins's Element Capital Management sold off the biggest investment of the 700 funds followed by Insider Monkey, totaling close to $24.9 million in stock, and Lee Ainslie's Maverick Capital was right behind this move, as the fund dumped about $21.3 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 3 funds heading into Q3.
Let's also examine hedge fund activity in other stocks similar to Nordstrom, Inc. (NYSE:JWN). These stocks are Qiagen NV (NYSE:QGEN), Avery Dennison Corporation (NYSE:AVY), Brown & Brown, Inc. (NYSE:BRO), and EXACT Sciences Corporation (NASDAQ:EXAS). This group of stocks' market valuations are similar to JWN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QGEN,21,361499,-3 AVY,28,474724,-1 BRO,20,675949,-2 EXAS,30,672423,-3 Average,24.75,546149,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $546 million. That figure was $224 million in JWN's case. EXACT Sciences Corporation (NASDAQ:EXAS) is the most popular stock in this table. On the other hand Brown & Brown, Inc. (NYSE:BRO) is the least popular one with only 20 bullish hedge fund positions. Nordstrom, Inc. (NYSE:JWN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately JWN wasn't in this group. Hedge funds that bet on JWN were disappointed as the stock lost 2.5% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.