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Were Hedge Funds Right About Piling Into NVIDIA Corporation (NVDA)?

Abigail Fisher

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded NVIDIA Corporation (NASDAQ:NVDA) and determine whether the smart money was really smart about this stock.

NVIDIA Corporation (NASDAQ:NVDA) has seen an increase in hedge fund interest lately. Our calculations also showed that NVDA 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.

If you'd ask most traders, hedge funds are assumed to be worthless, outdated financial vehicles of years past. While there are over 8000 funds trading today, Our experts hone in on the elite of this group, approximately 850 funds. These money managers direct most of the smart money's total asset base, and by monitoring their best investments, Insider Monkey has brought to light many investment strategies that have historically outpaced the broader indices. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

[caption id="attachment_731853" align="aligncenter" width="398"] Scott Bessent of Key Square Capital Management[/caption]

Scott Bessent of Key Square Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 15 largest gold producing countries to identify emerging companies that are likely to deliver 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 take a look at the recent hedge fund action regarding NVIDIA Corporation (NASDAQ:NVDA).

How have hedgies been trading NVIDIA Corporation (NASDAQ:NVDA)?

At the end of the first quarter, a total of 95 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NVDA 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, Citadel Investment Group held the most valuable stake in NVIDIA Corporation (NASDAQ:NVDA), which was worth $1106.8 million at the end of the third quarter. On the second spot was GQG Partners which amassed $995 million worth of shares. D E Shaw, Fisher Asset Management, and Citadel Investment Group 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 Albar Capital allocated the biggest weight to NVIDIA Corporation (NASDAQ:NVDA), around 12.79% of its 13F portfolio. AlphaOne Capital Partners is also relatively very bullish on the stock, designating 9.6 percent of its 13F equity portfolio to NVDA.

As aggregate interest increased, some big names have been driving this bullishness. Whale Rock Capital Management, managed by Alex Sacerdote, initiated the largest position in NVIDIA Corporation (NASDAQ:NVDA). Whale Rock Capital Management had $116.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $64.7 million position during the quarter. The other funds with brand new NVDA positions are Josh Resnick's Jericho Capital Asset Management, Scott Bessent's Key Square Capital Management, and John Hurley's Cavalry Asset Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as NVIDIA Corporation (NASDAQ:NVDA) but similarly valued. These stocks are Exxon Mobil Corporation (NYSE:XOM), Comcast Corporation (NASDAQ:CMCSA), China Mobile Limited (NYSE:CHL), and Adobe Inc. (NASDAQ:ADBE). This group of stocks' market valuations are similar to NVDA's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XOM,65,1295305,2 CMCSA,83,5538665,-4 CHL,11,449753,-1 ADBE,115,8180671,9 Average,68.5,3866099,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 68.5 hedge funds with bullish positions and the average amount invested in these stocks was $3866 million. That figure was $4128 million in NVDA's case. Adobe Inc. (NASDAQ:ADBE) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 11 bullish hedge fund positions. NVIDIA Corporation (NASDAQ:NVDA) is not the most popular stock in this group but hedge fund interest is still above 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 but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on NVDA as the stock returned 44.1% in Q2 (through June 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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