Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Nova Measuring Instruments Ltd. (NASDAQ:NVMI) investors should pay attention to an increase in support from the world's most elite money managers recently. Our calculations also showed that NVMI 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.
If you'd ask most market participants, hedge funds are assumed to be unimportant, old financial vehicles of years past. While there are greater than 8000 funds in operation at the moment, We choose to focus on the moguls of this club, about 750 funds. These investment experts manage the lion's share of all hedge funds' total capital, and by monitoring their finest picks, Insider Monkey has determined numerous investment strategies that have historically defeated the broader indices. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_340081" align="aligncenter" width="450"] Phill Gross of Adage Capital Management[/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. We're going to analyze the recent hedge fund action encompassing Nova Measuring Instruments Ltd. (NASDAQ:NVMI).
Hedge fund activity in Nova Measuring Instruments Ltd. (NASDAQ:NVMI)
At Q3's end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in NVMI 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.
More specifically, Adage Capital Management was the largest shareholder of Nova Measuring Instruments Ltd. (NASDAQ:NVMI), with a stake worth $76.7 million reported as of the end of September. Trailing Adage Capital Management was Renaissance Technologies, which amassed a stake valued at $65.5 million. Royce & Associates, D E Shaw, and PDT Partners 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 Adage Capital Management allocated the biggest weight to Nova Measuring Instruments Ltd. (NASDAQ:NVMI), around 0.19% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.16 percent of its 13F equity portfolio to NVMI.
Consequently, key hedge funds have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, initiated the most outsized call position in Nova Measuring Instruments Ltd. (NASDAQ:NVMI). Citadel Investment Group had $0.9 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also made a $0.4 million investment in the stock during the quarter. The only other fund with a brand new NVMI position is Paul Marshall and Ian Wace's Marshall Wace.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Nova Measuring Instruments Ltd. (NASDAQ:NVMI) but similarly valued. These stocks are Trupanion Inc (NASDAQ:TRUP), Banco BBVA Argentina S.A. (NYSE:BBAR), Extreme Networks, Inc (NASDAQ:EXTR), and Social Capital Hedosophia Holdings Corp. (NYSE:IPOA). This group of stocks' market valuations match NVMI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRUP,10,122985,0 BBAR,9,6431,1 EXTR,16,120270,-3 IPOA,25,327427,2 Average,15,144278,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $144 million. That figure was $168 million in NVMI's case. Social Capital Hedosophia Holdings Corp. (NYSE:IPOA) is the most popular stock in this table. On the other hand Banco BBVA Argentina S.A. (NYSE:BBAR) is the least popular one with only 9 bullish hedge fund positions. Nova Measuring Instruments Ltd. (NASDAQ:NVMI) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on NVMI as the stock returned 13.7% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.