The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) and find out how it is affected by hedge funds' moves.
Hedge fund interest in Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Leidos Holdings Inc (NYSE:LDOS), Telecom Italia S.p.A. (NYSE:TI), and Trimble Inc. (NASDAQ:TRMB) to gather more data points.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the new hedge fund action regarding Norwegian Cruise Line Holdings Ltd (NYSE:NCLH).
Hedge fund activity in Norwegian Cruise Line Holdings Ltd (NYSE:NCLH)
Heading into the third quarter of 2019, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in NCLH a year ago. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, HG Vora Capital Management, managed by Parag Vora, holds the most valuable position in Norwegian Cruise Line Holdings Ltd (NYSE:NCLH). HG Vora Capital Management has a $171.6 million position in the stock, comprising 12.5% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, with a $158.3 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions consist of Cliff Asness's AQR Capital Management, John Overdeck and David Siegel's Two Sigma Advisors and Thomas E. Claugus's GMT Capital.
Because Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) has experienced falling interest from the smart money, we can see that there lies a certain "tier" of fund managers that decided to sell off their entire stakes in the second quarter. Interestingly, Ricky Sandler's Eminence Capital dropped the biggest stake of all the hedgies tracked by Insider Monkey, totaling close to $120.7 million in stock, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital was right behind this move, as the fund dumped about $20.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) but similarly valued. These stocks are Leidos Holdings Inc (NYSE:LDOS), Telecom Italia S.p.A. (NYSE:TI), Trimble Inc. (NASDAQ:TRMB), and Arconic Inc. (NYSE:ARNC). This group of stocks' market values are closest to NCLH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LDOS,23,415779,2 TI,1,3257,0 TRMB,16,687865,2 ARNC,42,3395555,8 Average,20.5,1125614,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $1126 million. That figure was $966 million in NCLH's case. Arconic Inc. (NYSE:ARNC) is the most popular stock in this table. On the other hand Telecom Italia S.p.A. (NYSE:TI) is the least popular one with only 1 bullish hedge fund positions. Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NCLH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NCLH were disappointed as the stock returned -3.5% during the third quarter 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 (see the video below) among hedge funds as many of these stocks already outperformed the market so far this year. 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.