How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding 21Vianet Group Inc (NASDAQ:VNET) and determine whether hedge funds had an edge regarding this stock.
21Vianet Group Inc (NASDAQ:VNET) investors should be aware of an increase in activity from the world’s largest hedge funds in recent months. 21Vianet Group Inc (NASDAQ:VNET) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that VNET isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Glen Kacher of Light Street Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s analyze the recent hedge fund action regarding 21Vianet Group Inc (NASDAQ:VNET).
Hedge fund activity in 21Vianet Group Inc (NASDAQ:VNET)
At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards VNET over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in 21Vianet Group Inc (NASDAQ:VNET) was held by Sylebra Capital Management, which reported holding $63.6 million worth of stock at the end of September. It was followed by Light Street Capital with a $47.6 million position. Other investors bullish on the company included Discovery Capital Management, Renaissance Technologies, and Bloom Tree Partners. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to 21Vianet Group Inc (NASDAQ:VNET), around 5.8% of its 13F portfolio. Discovery Capital Management is also relatively very bullish on the stock, setting aside 5.51 percent of its 13F equity portfolio to VNET.
Now, key money managers have jumped into 21Vianet Group Inc (NASDAQ:VNET) headfirst. Light Street Capital, managed by Glen Kacher, created the biggest position in 21Vianet Group Inc (NASDAQ:VNET). Light Street Capital had $47.6 million invested in the company at the end of the quarter. Alok Agrawal’s Bloom Tree Partners also initiated a $20.1 million position during the quarter. The other funds with brand new VNET positions are Kevin Mok’s Hidden Lake Asset Management, Run Ye, Junji Takegami and Hoyon Hwang’s Tiger Pacific Capital, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s check out hedge fund activity in other stocks similar to 21Vianet Group Inc (NASDAQ:VNET). We will take a look at Equinox Gold Corp. (NYSE:EQX), Turning Point Therapeutics, Inc. (NASDAQ:TPTX), Amarin Corporation plc (NASDAQ:AMRN), Macquarie Infrastructure Corporation (NYSE:MIC), Itron, Inc. (NASDAQ:ITRI), AllianceBernstein Holding LP (NYSE:AB), and Endava plc (NYSE:DAVA). This group of stocks’ market caps match VNET’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EQX | 14 | 122841 | 7 |
| TPTX | 30 | 524757 | 11 |
| AMRN | 32 | 477249 | -7 |
| MIC | 38 | 564202 | 8 |
| ITRI | 13 | 300874 | -6 |
| AB | 7 | 23909 | 0 |
| DAVA | 8 | 76269 | -1 |
| Average | 20.3 | 298586 | 1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.3 hedge funds with bullish positions and the average amount invested in these stocks was $299 million. That figure was $266 million in VNET’s case. Macquarie Infrastructure Corporation (NYSE:MIC) is the most popular stock in this table. On the other hand AllianceBernstein Holding LP (NYSE:AB) is the least popular one with only 7 bullish hedge fund positions. 21Vianet Group Inc (NASDAQ:VNET) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VNET is 58.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately VNET wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); VNET investors were disappointed as the stock returned -2.9% in the third quarter 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 in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
