Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Tarena International Inc (NASDAQ:TEDU) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that TEDU isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Gifford Combs of Dalton Investments
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a gander at the fresh hedge fund action surrounding Tarena International Inc (NASDAQ:TEDU).
How have hedgies been trading Tarena International Inc (NASDAQ:TEDU)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -43% from the second quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in TEDU a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the biggest position in Tarena International Inc (NASDAQ:TEDU), worth close to $0.9 million, corresponding to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Gifford Combs of Dalton Investments, with a $0.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions include John Overdeck and David Siegel’s Two Sigma Advisors, Israel Englander’s Millennium Management and . In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Tarena International Inc (NASDAQ:TEDU), around 0.08% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.0008 percent of its 13F equity portfolio to TEDU.
Because Tarena International Inc (NASDAQ:TEDU) has experienced bearish sentiment from the smart money, it’s easy to see that there was a specific group of funds that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that Ernest Chow and Jonathan Howe’s Sensato Capital Management dropped the largest position of the 750 funds tracked by Insider Monkey, totaling close to $0.5 million in stock, and David E. Shaw’s D E Shaw was right behind this move, as the fund cut about $0 million worth. These moves are important to note, as total hedge fund interest was cut by 3 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Tarena International Inc (NASDAQ:TEDU). We will take a look at Core Molding Technologies, Inc. (NYSE:CMT), Educational Development Corporation (NASDAQ:EDUC), Alio Gold Inc. (NYSE:ALO), and FuelCell Energy, Inc. (NASDAQ:FCEL). All of these stocks’ market caps are closest to TEDU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMT | 4 | 9567 | 0 |
| EDUC | 1 | 1323 | 0 |
| ALO | 3 | 1856 | 0 |
| FCEL | 3 | 360 | -4 |
| Average | 2.75 | 3277 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.75 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $1 million in TEDU’s case. Core Molding Technologies, Inc. (NYSE:CMT) is the most popular stock in this table. On the other hand Educational Development Corporation (NASDAQ:EDUC) is the least popular one with only 1 bullish hedge fund positions. Tarena International Inc (NASDAQ:TEDU) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TEDU wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TEDU were disappointed as the stock returned -11.1% during the fourth quarter (through the end of November) 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.
Disclosure: None. This article was originally published at Insider Monkey.
