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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. Keeping this in mind, let's take a look at whether NovaGold Resources Inc. (NYSE:NG) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Hedge fund interest in NovaGold Resources Inc. (NYSE:NG) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare NG to other stocks including Evercore Inc. (NYSE:EVR), Inovalon Holdings Inc (NASDAQ:INOV), and Telephone & Data Systems, Inc. (NYSE:TDS) to get a better sense of its popularity.
If you'd ask most shareholders, hedge funds are seen as unimportant, old investment vehicles of the past. While there are over 8000 funds trading today, Our researchers look at the upper echelon of this club, around 850 funds. These investment experts have their hands on the lion's share of the hedge fund industry's total asset base, and by paying attention to their finest picks, Insider Monkey has deciphered a few investment strategies that have historically beaten the S&P 500 index. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
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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. Keeping this in mind let's view the key hedge fund action regarding NovaGold Resources Inc. (NYSE:NG).
How are hedge funds trading NovaGold Resources Inc. (NYSE:NG)?
At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in NG over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Paulson & Co held the most valuable stake in NovaGold Resources Inc. (NYSE:NG), which was worth $197.1 million at the end of the third quarter. On the second spot was Empyrean Capital Partners which amassed $38.3 million worth of shares. JNE Partners, Kopernik Global Investors, and Polar 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 JNE Partners allocated the biggest weight to NovaGold Resources Inc. (NYSE:NG), around 24.48% of its 13F portfolio. Kopernik Global Investors is also relatively very bullish on the stock, designating 5.86 percent of its 13F equity portfolio to NG.
Seeing as NovaGold Resources Inc. (NYSE:NG) has experienced a decline in interest from the smart money, it's easy to see that there were a few money managers who sold off their full holdings heading into Q4. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management dropped the biggest investment of the 750 funds watched by Insider Monkey, totaling about $0.3 million in stock. Michael Platt and William Reeves's fund, BlueCrest Capital Mgmt., also sold off its stock, about $0.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as NovaGold Resources Inc. (NYSE:NG) but similarly valued. These stocks are Evercore Inc. (NYSE:EVR), Inovalon Holdings Inc (NASDAQ:INOV), Telephone & Data Systems, Inc. (NYSE:TDS), and Quaker Chemical Corp (NYSE:KWR). All of these stocks' market caps match NG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVR,32,316470,-1 INOV,16,82039,5 TDS,22,269898,-7 KWR,9,156162,-10 Average,19.75,206142,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $206 million. That figure was $353 million in NG's case. Evercore Inc. (NYSE:EVR) is the most popular stock in this table. On the other hand Quaker Chemical Corp (NYSE:KWR) is the least popular one with only 9 bullish hedge fund positions. NovaGold Resources Inc. (NYSE:NG) 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 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 still beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on NG as the stock returned -7.6% during the same time period and outperformed the market by an even larger margin.
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.