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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on September 30th, about a month before the elections. We at Insider Monkey have made an extensive database of more than 817 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded National Western Life Group Inc. (NASDAQ:NWLI) based on those filings.
National Western Life Group Inc. (NASDAQ:NWLI) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that NWLI 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). At the end of this article we will also compare NWLI to other stocks including GameStop Corp. (NYSE:GME), AAR Corp. (NYSE:AIR), and SunOpta, Inc. (NASDAQ:STKL) to get a better sense of its popularity.
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.
Paul Isaac of Arbiter Partners 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. Keeping this in mind let's take a glance at the key hedge fund action regarding National Western Life Group Inc. (NASDAQ:NWLI).
Hedge fund activity in National Western Life Group Inc. (NASDAQ:NWLI)
Heading into the fourth quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in NWLI over the last 21 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Arbiter Partners Capital Management was the largest shareholder of National Western Life Group Inc. (NASDAQ:NWLI), with a stake worth $2.8 million reported as of the end of September. Trailing Arbiter Partners Capital Management was AQR Capital Management, which amassed a stake valued at $2 million. Renaissance Technologies, Arrowstreet Capital, and Millennium Management 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 Arbiter Partners Capital Management allocated the biggest weight to National Western Life Group Inc. (NASDAQ:NWLI), around 0.12% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, designating 0.0034 percent of its 13F equity portfolio to NWLI.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Royce & Associates. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).
Let's also examine hedge fund activity in other stocks similar to National Western Life Group Inc. (NASDAQ:NWLI). These stocks are GameStop Corp. (NYSE:GME), AAR Corp. (NYSE:AIR), SunOpta, Inc. (NASDAQ:STKL), Star Bulk Carriers Corp. (NASDAQ:SBLK), Noble Midstream Partners LP (NASDAQ:NBLX), VBI Vaccines, Inc. (NASDAQ:VBIV), and SMART Global Holdings, Inc. (NASDAQ:SGH). All of these stocks' market caps resemble NWLI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GME,28,164392,9 AIR,18,43968,-1 STKL,13,253119,0 SBLK,5,303910,-2 NBLX,1,1820,0 VBIV,11,191461,1 SGH,14,287640,0 Average,12.9,178044,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $178 million. That figure was $10 million in NWLI's case. GameStop Corp. (NYSE:GME) is the most popular stock in this table. On the other hand Noble Midstream Partners LP (NASDAQ:NBLX) is the least popular one with only 1 bullish hedge fund positions. National Western Life Group Inc. (NASDAQ:NWLI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NWLI is 37.1. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 31.6% in 2020 through December 2nd and surpassed the market again by 16 percentage points. Unfortunately NWLI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NWLI investors were disappointed as the stock returned 5.3% since the end of September (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.