Hedge Funds Are Selling E Commerce China Dangdang Inc (ADR) (DANG)

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: E Commerce China Dangdang Inc (ADR) (NYSE:DANG).

E Commerce China Dangdang Inc (ADR) (NYSE:DANG) has experienced a decrease in hedge fund sentiment 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 EPIQ Systems, Inc. (NASDAQ:EPIQ), Boot Barn Holdings Inc (NYSE:BOOT), and Hanger Inc (NYSE:HGR) to gather more data points.

In the 21st century investor’s toolkit there are dozens of methods market participants use to appraise their stock investments. A couple of the most underrated methods are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the best fund managers can outpace the S&P 500 by a solid amount (see the details here).

Keeping this in mind, let’s go over the recent action surrounding E Commerce China Dangdang Inc (ADR) (NYSE:DANG).

Hedge fund activity in E Commerce China Dangdang Inc (ADR) (NYSE:DANG)

At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -43% from the second quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Michael Novogratz’s Fortress Investment Group has the most valuable position in E Commerce China Dangdang Inc (ADR) (NYSE:DANG), worth close to $9 million, corresponding to 0.1% of its total 13F portfolio. The second largest stake is held by Hillhouse Capital Management, led by Lei Zhang, holding an $6.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers that are bullish comprise Sahm Adrangi’s Kerrisdale Capital, Jacob Gottlieb’s Visium Asset Management and Israel Englander’s Millennium Management.

Due to the fact that E Commerce China Dangdang Inc (ADR) (NYSE:DANG) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there is a sect of fund managers that slashed their entire stakes in the third quarter. It’s worth mentioning that Daniel S. Och’s OZ Management sold off the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth about $15 million in stock, and John Burbank’s Passport Capital was right behind this move, as the fund said goodbye to about $11 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 6 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as E Commerce China Dangdang Inc (ADR) (NYSE:DANG) but similarly valued. These stocks are EPIQ Systems, Inc. (NASDAQ:EPIQ), Boot Barn Holdings Inc (NYSE:BOOT), Hanger Inc (NYSE:HGR), and PennantPark Investment Corp. (NASDAQ:PNNT). This group of stocks’ market values resemble DANG’s market value.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $19 million in DANG’s case. EPIQ Systems, Inc. (NASDAQ:EPIQ) is the most popular stock in this table. On the other hand Boot Barn Holdings Inc (NYSE:BOOT) is the least popular one with only 7 bullish hedge fund positions. Even though E Commerce China Dangdang Inc (ADR) (NYSE:DANG) is not the least popular stock in this group, it has not attracted much attention from investors. Therefore, we’d rather spend our time researching stocks that hedge funds are collectively most bullish on. In this case, EPIQ might be a better alternative.