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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article we look at what those investors think of Newmark Group, Inc. (NASDAQ:NMRK).
Newmark Group, Inc. (NASDAQ:NMRK) was in 23 hedge funds' portfolios at the end of the fourth quarter of 2019. NMRK has seen an increase in activity from the world's largest hedge funds lately. There were 22 hedge funds in our database with NMRK positions at the end of the previous quarter. Our calculations also showed that NMRK isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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John Paulson of Paulson & Co[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a gander at the new hedge fund action surrounding Newmark Group, Inc. (NASDAQ:NMRK).
How have hedgies been trading Newmark Group, Inc. (NASDAQ:NMRK)?
At Q4's end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in NMRK a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cardinal Capital, managed by Amy Minella, holds the number one position in Newmark Group, Inc. (NASDAQ:NMRK). Cardinal Capital has a $37.6 million position in the stock, comprising 1.1% of its 13F portfolio. The second most bullish fund manager is EJF Capital, led by Emanuel J. Friedman, holding a $34.3 million position; 3.4% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that hold long positions include John Paulson's Paulson & Co, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position EJF Capital allocated the biggest weight to Newmark Group, Inc. (NASDAQ:NMRK), around 3.45% of its 13F portfolio. Gratia Capital is also relatively very bullish on the stock, earmarking 3.39 percent of its 13F equity portfolio to NMRK.
As aggregate interest increased, key hedge funds have jumped into Newmark Group, Inc. (NASDAQ:NMRK) headfirst. Renaissance Technologies, assembled the most valuable position in Newmark Group, Inc. (NASDAQ:NMRK). Renaissance Technologies had $9.7 million invested in the company at the end of the quarter. Travis Cocke's Voss Capital also made a $1.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Mike Vranos's Ellington, Roger Ibbotson's Zebra Capital Management, and Thomas Bailard's Bailard Inc.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Newmark Group, Inc. (NASDAQ:NMRK) but similarly valued. We will take a look at SVMK Inc. (NASDAQ:SVMK), ArQule, Inc. (NASDAQ:ARQL), ESCO Technologies Inc. (NYSE:ESE), and Sanmina Corporation (NASDAQ:SANM). All of these stocks' market caps match NMRK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SVMK,31,302485,5 ARQL,46,966954,22 ESE,9,42972,1 SANM,21,234374,-1 Average,26.75,386696,6.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $387 million. That figure was $157 million in NMRK's case. ArQule, Inc. (NASDAQ:ARQL) is the most popular stock in this table. On the other hand ESCO Technologies Inc. (NYSE:ESE) is the least popular one with only 9 bullish hedge fund positions. Newmark Group, Inc. (NASDAQ:NMRK) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately NMRK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NMRK investors were disappointed as the stock returned -67% during the same time 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.