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 Navigator Holdings Ltd (NYSE:NVGS) and determine whether hedge funds had an edge regarding this stock.
Navigator Holdings Ltd (NYSE:NVGS) was in 13 hedge funds' portfolios at the end of the first quarter of 2020. NVGS has seen a decrease in enthusiasm from smart money of late. There were 16 hedge funds in our database with NVGS positions at the end of the previous quarter. Our calculations also showed that NVGS isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
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Mario Gabelli of GAMCO Investors[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 biggest gold mining companies to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's review the recent hedge fund action surrounding Navigator Holdings Ltd (NYSE:NVGS).
What does smart money think about Navigator Holdings Ltd (NYSE:NVGS)?
At Q1's end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NVGS over the last 18 quarters. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in Navigator Holdings Ltd (NYSE:NVGS), which was worth $5.5 million at the end of the third quarter. On the second spot was Horizon Asset Management which amassed $5.4 million worth of shares. Renaissance Technologies, Minerva Advisors, and GAMCO Investors 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 Minerva Advisors allocated the biggest weight to Navigator Holdings Ltd (NYSE:NVGS), around 1.31% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, earmarking 0.24 percent of its 13F equity portfolio to NVGS.
Since Navigator Holdings Ltd (NYSE:NVGS) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there is a sect of fund managers who sold off their full holdings last quarter. It's worth mentioning that Gavin Saitowitz and Cisco J. del Valle's Springbok Capital dumped the largest investment of all the hedgies watched by Insider Monkey, worth close to $0.6 million in stock. Michael Gelband's fund, ExodusPoint Capital, also dumped its stock, about $0.3 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 3 funds last quarter.
Let's check out hedge fund activity in other stocks similar to Navigator Holdings Ltd (NYSE:NVGS). These stocks are Silver Spike Acquisition Corp. (NASDAQ:SSPKU), ADMA Biologics Inc (NASDAQ:ADMA), Paysign, Inc. (NASDAQ:PAYS), and OneSpaWorld Holdings Limited (NASDAQ:OSW). All of these stocks' market caps resemble NVGS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSPKU,12,35047,2 ADMA,19,86590,7 PAYS,11,14615,-4 OSW,15,33475,4 Average,14.25,42432,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $19 million in NVGS's case. ADMA Biologics Inc (NASDAQ:ADMA) is the most popular stock in this table. On the other hand Paysign, Inc. (NASDAQ:PAYS) is the least popular one with only 11 bullish hedge fund positions. Navigator Holdings Ltd (NYSE:NVGS) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on NVGS as the stock returned 50.2% during the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.