Is National Western Life Insurance Company (NASDAQ:NWLI) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is National Western Life Insurance Company (NASDAQ:NWLI) a bargain? Investors who are in the know are turning bullish. The number of bullish hedge fund positions advanced by 1 recently. Our calculations also showed that NWLI 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.
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' 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 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 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.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the new hedge fund action encompassing National Western Life Insurance Company (NASDAQ:NWLI).
What have hedge funds been doing with National Western Life Insurance Company (NASDAQ:NWLI)?
Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in NWLI a year ago. With the smart money's sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of National Western Life Insurance Company (NASDAQ:NWLI), with a stake worth $7.1 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $5.8 million. Citadel Investment Group, Zebra Capital Management, 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 Zebra Capital Management allocated the biggest weight to National Western Life Insurance Company (NASDAQ:NWLI), around 0.73% of its 13F portfolio. Arbiter Partners Capital Management is also relatively very bullish on the stock, earmarking 0.1 percent of its 13F equity portfolio to NWLI.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Arbiter Partners Capital Management, managed by Paul J. Isaac, created the most valuable position in National Western Life Insurance Company (NASDAQ:NWLI). Arbiter Partners Capital Management had $0.5 million invested in the company at the end of the quarter.
Let's now take a look at hedge fund activity in other stocks similar to National Western Life Insurance Company (NASDAQ:NWLI). We will take a look at Zymeworks Inc. (NYSE:ZYME), Sculptor Capital Management, Inc. (NYSE:SCU), Ferro Corporation (NYSE:FOE), and Mr. Cooper Group Inc. (NASDAQ:COOP). This group of stocks' market caps are closest to NWLI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZYME,16,347944,2 SCU,11,65813,1 FOE,16,131293,2 COOP,24,285179,1 Average,16.75,207557,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $17 million in NWLI's case. Mr. Cooper Group Inc. (NASDAQ:COOP) is the most popular stock in this table. On the other hand Sculptor Capital Management, Inc. (NYSE:SCU) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks National Western Life Insurance Company (NASDAQ:NWLI) is even less popular than SCU. Hedge funds dodged a bullet by taking a bearish stance towards NWLI. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NWLI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NWLI investors were disappointed as the stock returned -5.9% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.