Hedge Funds Are Buying Nasdaq, Inc. (NDAQ)

Abigail Fisher

Updated Sat, Dec 15, 2018, 8:35 PM

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

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Nasdaq, Inc. (NASDAQ:NDAQ) investors should be aware of an increase in enthusiasm from smart money lately. Our calculations also showed that NDAQ isn't among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Let's take a peek at the new hedge fund action encompassing Nasdaq, Inc. (NASDAQ:NDAQ).

Hedge fund activity in Nasdaq, Inc. (NASDAQ:NDAQ)

At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NDAQ over the last 13 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, AQR Capital Management held the most valuable stake in Nasdaq, Inc. (NASDAQ:NDAQ), which was worth $124.9 million at the end of the third quarter. On the second spot was D E Shaw which amassed $97.6 million worth of shares. Moreover, Segantii Capital, Laurion Capital Management, and Adage Capital Management were also bullish on Nasdaq, Inc. (NASDAQ:NDAQ), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, key money managers have been driving this bullishness. Segantii Capital, managed by Simon Sadler, initiated the biggest position in Nasdaq, Inc. (NASDAQ:NDAQ). Segantii Capital had $19.3 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $7.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Ray Dalio's Bridgewater Associates, and Michael Platt and William Reeves's BlueCrest Capital Mgmt..

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Nasdaq, Inc. (NASDAQ:NDAQ) but similarly valued. We will take a look at Apollo Global Management LLC (NYSE:APO), Vornado Realty Trust (NYSE:VNO), CMS Energy Corporation (NYSE:CMS), and Darden Restaurants, Inc. (NYSE:DRI). This group of stocks' market values are closest to NDAQ's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position APO,22,1524416,3 VNO,25,481421,-1 CMS,22,282246,4 DRI,22,980978,-3 Average,22.75,817265,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $817 million. That figure was $310 million in NDAQ's case. Vornado Realty Trust (NYSE:VNO) is the most popular stock in this table. On the other hand Apollo Global Management LLC (NYSE:APO) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Nasdaq, Inc. (NASDAQ:NDAQ) is even less popular than APO. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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

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