Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
Is New Oriental Education & Tech Group Inc. (NYSE:EDU) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
New Oriental Education & Tech Group Inc. (NYSE:EDU) shareholders have witnessed an increase in enthusiasm from smart money recently. EDU was in 50 hedge funds’ portfolios at the end of December. There were 38 hedge funds in our database with EDU holdings at the end of the previous quarter. Our calculations also showed that EDU isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to take a glance at the key hedge fund action regarding New Oriental Education & Tech Group Inc. (NYSE:EDU).
How have hedgies been trading New Oriental Education & Tech Group Inc. (NYSE:EDU)?
At the end of the fourth quarter, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 32% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in EDU a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in New Oriental Education & Tech Group Inc. (NYSE:EDU), which was worth $184.4 million at the end of the third quarter. On the second spot was Tiger Global Management LLC which amassed $174.7 million worth of shares. Melvin Capital Management, Alkeon Capital Management, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Tairen Capital allocated the biggest weight to New Oriental Education & Tech Group Inc. (NYSE:EDU), around 13.4% of its 13F portfolio. Kylin Management is also relatively very bullish on the stock, setting aside 10.72 percent of its 13F equity portfolio to EDU.
Now, some big names have jumped into New Oriental Education & Tech Group Inc. (NYSE:EDU) headfirst. Discovery Capital Management, managed by Rob Citrone, initiated the biggest position in New Oriental Education & Tech Group Inc. (NYSE:EDU). Discovery Capital Management had $10.3 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $6.2 million position during the quarter. The other funds with brand new EDU positions are Joe DiMenna’s ZWEIG DIMENNA PARTNERS, Gifford Combs’s Dalton Investments, and Tor Minesuk’s Mondrian Capital.
Let’s check out hedge fund activity in other stocks similar to New Oriental Education & Tech Group Inc. (NYSE:EDU). We will take a look at Tencent Music Entertainment Group (NYSE:TME), Fortis Inc. (NYSE:FTS), Vulcan Materials Company (NYSE:VMC), and Restaurant Brands International Inc (NYSE:QSR). This group of stocks’ market caps are similar to EDU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TME | 26 | 515443 | 10 |
| FTS | 14 | 768397 | -1 |
| VMC | 52 | 1631663 | -5 |
| QSR | 52 | 3118805 | -7 |
| Average | 36 | 1508577 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1509 million. That figure was $1375 million in EDU’s case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand Fortis Inc. (NYSE:FTS) is the least popular one with only 14 bullish hedge fund positions. New Oriental Education & Tech Group Inc. (NYSE:EDU) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on EDU as the stock returned 4.8% during the first quarter (through March 9th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
