We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Northern Dynasty Minerals Ltd. (NYSEAMERICAN:NAK).
Northern Dynasty Minerals Ltd. (NYSEAMERICAN:NAK) investors should pay attention to a decrease in support from the world's most elite money managers in recent months. Our calculations also showed that NAK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26340" align="aligncenter" width="594"] Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to take a peek at the new hedge fund action surrounding Northern Dynasty Minerals Ltd. (NYSEAMERICAN:NAK).
What have hedge funds been doing with Northern Dynasty Minerals Ltd. (NYSEAMERICAN:NAK)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 3 hedge funds with a bullish position in NAK 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.
Of the funds tracked by Insider Monkey, Kopernik Global Investors, managed by David Iben, holds the largest position in Northern Dynasty Minerals Ltd. (NYSEAMERICAN:NAK). Kopernik Global Investors has a $5.1 million position in the stock, comprising 1% of its 13F portfolio. On Kopernik Global Investors's heels is Millennium Management, managed by Israel Englander, which holds a $0.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism include Ken Griffin's Citadel Investment Group, Renaissance Technologies and Eric Sprott's Sprott Asset Management. In terms of the portfolio weights assigned to each position Kopernik Global Investors allocated the biggest weight to Northern Dynasty Minerals Ltd. (NYSEAMERICAN:NAK), around 0.98% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, earmarking 0.0038 percent of its 13F equity portfolio to NAK.
Judging by the fact that Northern Dynasty Minerals Ltd. (NYSEAMERICAN:NAK) has experienced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of hedge funds that decided to sell off their positions entirely heading into Q4. Intriguingly, Jonathan Barrett and Paul Segal's Luminus Management dropped the largest investment of all the hedgies tracked by Insider Monkey, comprising an estimated $1.2 million in stock. John Thiessen's fund, Vertex One Asset Management, also said goodbye to its stock, about $1 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to Northern Dynasty Minerals Ltd. (NYSEAMERICAN:NAK). We will take a look at Trecora Resources (NYSE:TREC), Tailored Brands, Inc. (NYSE:TLRD), Vince Holding Corp (NYSE:VNCE), and CRH Medical Corporation (NYSEAMERICAN:CRHM). This group of stocks' market valuations resemble NAK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TREC,10,23735,2 TLRD,12,21294,-6 VNCE,3,6052,1 CRHM,6,39884,0 Average,7.75,22741,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $6 million in NAK's case. Tailored Brands, Inc. (NYSE:TLRD) is the most popular stock in this table. On the other hand Vince Holding Corp (NYSE:VNCE) is the least popular one with only 3 bullish hedge fund positions. Northern Dynasty Minerals Ltd. (NYSEAMERICAN:NAK) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NAK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NAK investors were disappointed as the stock returned -6.8% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.