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Were Hedge Funds Illusioned With Herbalife Nutrition Ltd. (HLF)?

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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Herbalife Nutrition Ltd. (NYSE:HLF) based on that data and determine whether they were really smart about the stock.

Herbalife Nutrition Ltd. (NYSE:HLF) investors should be aware of a decrease in activity from the world's largest hedge funds in recent months. Herbalife Nutrition Ltd. (NYSE:HLF) was in 38 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 44. There were 40 hedge funds in our database with HLF holdings at the end of June. Our calculations also showed that HLF isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let's take a peek at the recent hedge fund action surrounding Herbalife Nutrition Ltd. (NYSE:HLF).

CAS Investment Partners, Cliff Sosin
CAS Investment Partners, Cliff Sosin

Clifford Sosin of CAS Investment Partners

Do Hedge Funds Think HLF Is A Good Stock To Buy Now?

At third quarter's end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HLF over the last 25 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Route One Investment Company was the largest shareholder of Herbalife Nutrition Ltd. (NYSE:HLF), with a stake worth $372.6 million reported as of the end of September. Trailing Route One Investment Company was Renaissance Technologies, which amassed a stake valued at $370.8 million. Alua Capital Management, Deccan Value Advisors, and CAS Investment 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 General Equity Partners allocated the biggest weight to Herbalife Nutrition Ltd. (NYSE:HLF), around 15.19% of its 13F portfolio. BlueDrive Global Investors is also relatively very bullish on the stock, designating 13.03 percent of its 13F equity portfolio to HLF.

Seeing as Herbalife Nutrition Ltd. (NYSE:HLF) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of hedgies that slashed their full holdings last quarter. Interestingly, Kenneth Mario Garschina's Mason Capital Management cut the largest stake of the 750 funds watched by Insider Monkey, worth close to $110.5 million in stock, and Shashin Shah's Think Investments was right behind this move, as the fund sold off about $22.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds last quarter.

Let's go over hedge fund activity in other stocks similar to Herbalife Nutrition Ltd. (NYSE:HLF). These stocks are National Beverage Corp. (NASDAQ:FIZZ), Pan American Silver Corp. (NASDAQ:PAAS), PowerSchool Holdings Inc. (NYSE:PWSC), Victorias Secret & Co. (NYSE:VSCO), Wingstop Inc (NASDAQ:WING), Nomad Foods Limited (NYSE:NOMD), and Select Medical Holdings Corporation (NYSE:SEM). All of these stocks' market caps are closest to HLF's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FIZZ,17,281959,-4 PAAS,22,251670,-2 PWSC,11,2277988,11 VSCO,37,1962390,37 WING,23,213008,-1 NOMD,23,272138,-3 SEM,22,228726,-2 Average,22.1,783983,5.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.1 hedge funds with bullish positions and the average amount invested in these stocks was $784 million. That figure was $1809 million in HLF's case. Victorias Secret & Co. (NYSE:VSCO) is the most popular stock in this table. On the other hand PowerSchool Holdings Inc. (NYSE:PWSC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Herbalife Nutrition Ltd. (NYSE:HLF) is more popular among hedge funds. Our overall hedge fund sentiment score for HLF is 78.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on HLF as the stock returned 0.3% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.

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Disclosure: None. This article was originally published at Insider Monkey.