We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on NMI Holdings Inc (NASDAQ:NMIH).
NMI Holdings Inc (NASDAQ:NMIH) has seen an increase in hedge fund interest lately. NMIH was in 21 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 20 hedge funds in our database with NMIH holdings at the end of the previous quarter. Our calculations also showed that NMIH isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
[caption id="attachment_30614" align="aligncenter" width="399"] Howard Marks of Oaktree Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now let's take a glance at the key hedge fund action encompassing NMI Holdings Inc (NASDAQ:NMIH).
How have hedgies been trading NMI Holdings Inc (NASDAQ:NMIH)?
At Q4's end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the third quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in NMIH a year ago. 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, Oaktree Capital Management held the most valuable stake in NMI Holdings Inc (NASDAQ:NMIH), which was worth $146 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $48.1 million worth of shares. Driehaus Capital, AQR Capital Management, and Two Sigma Advisors 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 Oaktree Capital Management allocated the biggest weight to NMI Holdings Inc (NASDAQ:NMIH), around 2.75% of its 13F portfolio. Beach Point Capital Management is also relatively very bullish on the stock, setting aside 0.68 percent of its 13F equity portfolio to NMIH.
Consequently, specific money managers have been driving this bullishness. Driehaus Capital, managed by Richard Driehaus, established the biggest position in NMI Holdings Inc (NASDAQ:NMIH). Driehaus Capital had $17.2 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $5.2 million investment in the stock during the quarter. The following funds were also among the new NMIH investors: Michael Kharitonov and Jon David McAuliffe's Voleon Capital, Gregg Moskowitz's Interval Partners, and Joel Greenblatt's Gotham Asset Management.
Let's check out hedge fund activity in other stocks similar to NMI Holdings Inc (NASDAQ:NMIH). We will take a look at Synthorx, Inc. (NASDAQ:THOR), Hilltop Holdings Inc. (NYSE:HTH), Argo Group International Holdings, Ltd. (NYSE:ARGO), and Acadia Realty Trust (NYSE:AKR). This group of stocks' market caps are closest to NMIH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position THOR,25,1284990,18 HTH,19,99488,-1 ARGO,19,184829,3 AKR,13,81788,-3 Average,19,412774,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $413 million. That figure was $263 million in NMIH's case. Synthorx, Inc. (NASDAQ:THOR) is the most popular stock in this table. On the other hand Acadia Realty Trust (NYSE:AKR) is the least popular one with only 13 bullish hedge fund positions. NMI Holdings Inc (NASDAQ:NMIH) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately NMIH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NMIH were disappointed as the stock returned -67.9% during the same time period 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 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.