We are still in an overall bull market and many stocks that smart money investors were piling into 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. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like China Jo-Jo Drugstores, Inc. (NASDAQ:CJJD).
China Jo-Jo Drugstores, Inc. (NASDAQ:CJJD) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of the third quarter of 2019. 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 Surface Oncology, Inc. (NASDAQ:SURF), Lazydays Holdings, Inc. (NASDAQ:LAZY), and Zomedica Pharmaceuticals Corp. (NYSE:ZOM) to gather more data points. Our calculations also showed that CJJD 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.
Why do we pay any attention at all to hedge fund sentiment? 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.
Ken Griffin of Citadel Investment Group
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 analyze the fresh hedge fund action encompassing China Jo-Jo Drugstores, Inc. (NASDAQ:CJJD).
What have hedge funds been doing with China Jo-Jo Drugstores, Inc. (NASDAQ:CJJD)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CJJD over the last 17 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Hillhouse Capital Management, managed by Lei Zhang, holds the biggest position in China Jo-Jo Drugstores, Inc. (NASDAQ:CJJD). Hillhouse Capital Management has a $5.9 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Sabby Capital, managed by Hal Mintz, which holds a $1.6 million position; 0.9% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism contain Renaissance Technologies, Ken Griffin’s Citadel Investment Group and . In terms of the portfolio weights assigned to each position Sabby Capital allocated the biggest weight to China Jo-Jo Drugstores, Inc. (NASDAQ:CJJD), around 0.86% of its 13F portfolio. Hillhouse Capital Management is also relatively very bullish on the stock, designating 0.08 percent of its 13F equity portfolio to CJJD.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Levin Capital Strategies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).
Let’s check out hedge fund activity in other stocks similar to China Jo-Jo Drugstores, Inc. (NASDAQ:CJJD). These stocks are Surface Oncology, Inc. (NASDAQ:SURF), Lazydays Holdings, Inc. (NASDAQ:LAZY), Zomedica Pharmaceuticals Corp. (NYSE:ZOM), and Alimera Sciences Inc (NASDAQ:ALIM). This group of stocks’ market caps match CJJD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SURF | 5 | 4909 | -2 |
| LAZY | 5 | 8105 | 0 |
| ZOM | 5 | 64 | 3 |
| ALIM | 9 | 13895 | 0 |
| Average | 6 | 6743 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $8 million in CJJD’s case. Alimera Sciences Inc (NASDAQ:ALIM) is the most popular stock in this table. On the other hand Surface Oncology, Inc. (NASDAQ:SURF) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks China Jo-Jo Drugstores, Inc. (NASDAQ:CJJD) is even less popular than SURF. Hedge funds clearly dropped the ball on CJJD as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on CJJD as the stock returned 16.7% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
