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Where Do Hedge Funds Stand On National Health Investors Inc (NHI)?

·6 min read

In this article we will analyze whether National Health Investors Inc (NYSE:NHI) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

National Health Investors Inc (NYSE:NHI) shareholders have witnessed a decrease in hedge fund interest lately. National Health Investors Inc (NYSE:NHI) was in 12 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 17. Our calculations also showed that NHI isn't among the 30 most popular stocks among hedge funds (click for Q3 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.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 66 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.

David Harding
David Harding

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let's review the fresh hedge fund action regarding National Health Investors Inc (NYSE:NHI).

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

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in NHI a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is NHI A Good Stock To Buy?
Is NHI A Good Stock To Buy?

The largest stake in National Health Investors Inc (NYSE:NHI) was held by Renaissance Technologies, which reported holding $21.7 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $10.3 million position. Other investors bullish on the company included Arrowstreet Capital, Carlson Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to National Health Investors Inc (NYSE:NHI), around 0.37% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, dishing out 0.17 percent of its 13F equity portfolio to NHI.

Since National Health Investors Inc (NYSE:NHI) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there were a few hedge funds that decided to sell off their positions entirely last quarter. At the top of the heap, David Harding's Winton Capital Management said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, totaling close to $2.5 million in stock. Michael Gelband's fund, ExodusPoint Capital, also dropped its stock, about $1.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 3 funds last quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as National Health Investors Inc (NYSE:NHI) but similarly valued. We will take a look at Coherent, Inc. (NASDAQ:COHR), Hecla Mining Company (NYSE:HL), ALLETE Inc (NYSE:ALE), Energizer Holdings, Inc. (NYSE:ENR), Viavi Solutions Inc (NASDAQ:VIAV), LCI Industries (NYSE:LCII), and Kornit Digital Ltd. (NASDAQ:KRNT). This group of stocks' market valuations are closest to NHI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COHR,29,163652,-3 HL,17,43194,4 ALE,20,79507,-5 ENR,28,221150,3 VIAV,29,328204,-2 LCII,25,113779,7 KRNT,18,86176,9 Average,23.7,147952,1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.7 hedge funds with bullish positions and the average amount invested in these stocks was $148 million. That figure was $55 million in NHI's case. Coherent, Inc. (NASDAQ:COHR) is the most popular stock in this table. On the other hand Hecla Mining Company (NYSE:HL) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks National Health Investors Inc (NYSE:NHI) is even less popular than HL. Our overall hedge fund sentiment score for NHI is 23.2. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th but managed to beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on NHI, though not to the same extent, as the stock returned 11% since the end of September (through December 8th) and outperformed the market as well.

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

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