China Online Education Group (COE): Are Hedge Funds Right About This Stock?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of China Online Education Group (NYSE:COE) based on that data.

China Online Education Group (NYSE:COE) has experienced an increase in hedge fund sentiment of late. Our calculations also showed that COE isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 S&P 500 ETFs by more than 44 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Jim Simons Founder of Renaissance Technologies

At Insider Monkey 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 interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the latest hedge fund action regarding China Online Education Group (NYSE:COE).

What does smart money think about China Online Education Group (NYSE:COE)?

At Q1’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards COE over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Sylebra Capital Management, managed by Daniel Patrick Gibson, holds the most valuable position in China Online Education Group (NYSE:COE). Sylebra Capital Management has a $9.2 million position in the stock, comprising 0.4% of its 13F portfolio. On Sylebra Capital Management’s heels is David Kowitz and Sheldon Kasowitz of Indus Capital, with a $6.8 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish include Renaissance Technologies, George McCabe’s Portolan Capital Management and . In terms of the portfolio weights assigned to each position Indus Capital allocated the biggest weight to China Online Education Group (NYSE:COE), around 1.15% of its 13F portfolio. Sylebra Capital Management is also relatively very bullish on the stock, dishing out 0.38 percent of its 13F equity portfolio to COE.

Consequently, some big names were breaking ground themselves. Portolan Capital Management, managed by George McCabe, initiated the most valuable position in China Online Education Group (NYSE:COE). Portolan Capital Management had $1 million invested in the company at the end of the quarter.

Let’s check out hedge fund activity in other stocks similar to China Online Education Group (NYSE:COE). We will take a look at Malibu Boats Inc (NASDAQ:MBUU), Meridian Bancorp, Inc. (NASDAQ:EBSB), Herc Holdings Inc. (NYSE:HRI), and ImmunoGen, Inc. (NASDAQ:IMGN). All of these stocks’ market caps are similar to COE’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $128 million. That figure was $20 million in COE’s case. ImmunoGen, Inc. (NASDAQ:IMGN) is the most popular stock in this table. On the other hand Meridian Bancorp, Inc. (NASDAQ:EBSB) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks China Online Education Group (NYSE:COE) is even less popular than EBSB. Hedge funds dodged a bullet by taking a bearish stance towards COE. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately COE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); COE investors were disappointed as the stock returned -10.7% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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