Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, with 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Momo Inc (ADR) (NASDAQ:MOMO).
Is Momo Inc (ADR) (NASDAQ:MOMO) the right pick for your portfolio? The smart money is in a pessimistic mood. The number of bullish hedge fund bets dropped by 3 in recent months. 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 Weibo Corp (ADR) (NASDAQ:WB), Diamond Offshore Drilling Inc (NYSE:DO), and IMAX Corporation (USA) (NYSE:IMAX) to gather more data points.
Keeping this in mind, we’re going to check out the latest action regarding Momo Inc (ADR) (NASDAQ:MOMO).
Hedge fund activity in Momo Inc (ADR) (NASDAQ:MOMO)
At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -38% from one quarter earlier. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Lei Zhang’s Hillhouse Capital Management has the number one position in Momo Inc (ADR) (NASDAQ:MOMO), worth close to $61 million, accounting for 1.2% of its total 13F portfolio. Sitting at the No. 2 spot is Jericho Capital Asset Management, managed by Josh Resnick, which holds a $18.8 million position; 1.2% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism encompass Ken Griffin’s Citadel Investment Group, and Matthew Hulsizer’s PEAK6 Capital Management.
Judging by the fact that Momo Inc (ADR) (NASDAQ:MOMO) has witnessed bearish sentiment from hedge fund managers, we can see that there were a few money managers who sold off their positions entirely last quarter. At the top of the heap, Karthik Sarma’s SRS Investment Management said goodbye to the largest position of all the hedgies watched by Insider Monkey, valued at an estimated $23.2 million in stock, and Philippe Laffont’s Coatue Management was right behind this move, as the fund said goodbye to about $8.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 3 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Momo Inc (ADR) (NASDAQ:MOMO) but similarly valued. We will take a look at Weibo Corp (ADR) (NASDAQ:WB), Diamond Offshore Drilling Inc (NYSE:DO), IMAX Corporation (USA) (NYSE:IMAX), and Franks International NV (NYSE:FI). This group of stocks’ market valuations are similar to MOMO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WB | 5 | 7945 | -1 |
| DO | 26 | 131790 | 6 |
| IMAX | 20 | 136436 | -1 |
| FI | 12 | 35734 | -5 |
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $86 million in MOMO’s case. Diamond Offshore Drilling Inc (NYSE:DO) is the most popular stock in this table. On the other hand Weibo Corp (ADR) (NASDAQ:WB) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Momo Inc (ADR) (NASDAQ:MOMO) is as less popular as WB. 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.