Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of 360 Finance, Inc. (NASDAQ:QFIN).
Is 360 Finance, Inc. (NASDAQ:QFIN) a buy here? The smart money is in a bearish mood. The number of long hedge fund bets went down by 9 in recent months. Our calculations also showed that QFIN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). QFIN was in 3 hedge funds’ portfolios at the end of March. There were 12 hedge funds in our database with QFIN holdings at the end of the previous quarter.
Video: 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 44 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Jim Simons of Renaissance Technologies
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the latest hedge fund action surrounding 360 Finance, Inc. (NASDAQ:QFIN).
How are hedge funds trading 360 Finance, Inc. (NASDAQ:QFIN)?
At Q1’s end, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -75% from the previous quarter. The graph below displays the number of hedge funds with bullish position in QFIN over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Ovata Capital Management held the most valuable stake in 360 Finance, Inc. (NASDAQ:QFIN), which was worth $9 million at the end of the third quarter. On the second spot was Hidden Lake Asset Management which amassed $1.1 million worth of shares. Renaissance Technologies was 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 Ovata Capital Management allocated the biggest weight to 360 Finance, Inc. (NASDAQ:QFIN), around 5.97% of its 13F portfolio. Hidden Lake Asset Management is also relatively very bullish on the stock, earmarking 1.8 percent of its 13F equity portfolio to QFIN.
Due to the fact that 360 Finance, Inc. (NASDAQ:QFIN) has experienced declining sentiment from hedge fund managers, we can see that there were a few hedge funds that slashed their full holdings heading into Q4. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest stake of all the hedgies followed by Insider Monkey, totaling close to $3.4 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund cut about $0.9 million worth. These transactions are important to note, as total hedge fund interest was cut by 9 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to 360 Finance, Inc. (NASDAQ:QFIN). These stocks are WillScot Corporation (NASDAQ:WSC), Installed Building Products Inc (NYSE:IBP), Essential Properties Realty Trust, Inc. (NYSE:EPRT), and Global Net Lease, Inc. (NYSE:GNL). This group of stocks’ market caps are similar to QFIN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WSC | 28 | 187831 | 0 |
| IBP | 21 | 86225 | -3 |
| EPRT | 8 | 11280 | -1 |
| GNL | 7 | 24660 | -3 |
| Average | 16 | 77499 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $10 million in QFIN’s case. WillScot Corporation (NASDAQ:WSC) is the most popular stock in this table. On the other hand Global Net Lease, Inc. (NYSE:GNL) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks 360 Finance, Inc. (NASDAQ:QFIN) is even less popular than GNL. Hedge funds dodged a bullet by taking a bearish stance towards QFIN. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but managed to beat the market by 15.6 percentage points. Unfortunately QFIN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); QFIN investors were disappointed as the stock returned 12.5% during the second quarter (through May 22nd) 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 so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.
