It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2018) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. 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 58.com Inc (NYSE:WUBA).
58.com Inc (NYSE:WUBA) was in 24 hedge funds’ portfolios at the end of September. WUBA has experienced an increase in enthusiasm from smart money of late. There were 22 hedge funds in our database with WUBA holdings at the end of the previous quarter. Our calculations also showed that WUBA isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s view the new hedge fund action encompassing 58.com Inc (NYSE:WUBA).
What have hedge funds been doing with 58.com Inc (NYSE:WUBA)?
At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WUBA over the last 13 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 58.com Inc (NYSE:WUBA) was held by Hillhouse Capital Management, which reported holding $194.2 million worth of stock at the end of September. It was followed by Lakewood Capital Management with a $70.9 million position. Other investors bullish on the company included Platinum Asset Management, Marshall Wace LLP, and GMT Capital.
As aggregate interest increased, key hedge funds have jumped into 58.com Inc (NYSE:WUBA) headfirst. Lakewood Capital Management, managed by Anthony Bozza, assembled the most outsized position in 58.com Inc (NYSE:WUBA). Lakewood Capital Management had $70.9 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $1.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Philip Hempleman’s Ardsley Partners, Warren Lammert’s Granite Point Capital, and Fang Zheng’s Keywise Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to 58.com Inc (NYSE:WUBA). These stocks are Jacobs Engineering Group Inc (NYSE:JEC), Trimble Inc. (NASDAQ:TRMB), Snap Inc. (NYSE:SNAP), and Albemarle Corporation (NYSE:ALB). This group of stocks’ market caps resemble WUBA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JEC | 30 | 730196 | 1 |
| TRMB | 17 | 606646 | -2 |
| SNAP | 17 | 514140 | 2 |
| ALB | 22 | 353670 | -5 |
| Average | 21.5 | 551163 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $551 million. That figure was $690 million in WUBA’s case. Jacobs Engineering Group Inc (NYSE:JEC) is the most popular stock in this table. On the other hand Trimble Inc. (NASDAQ:TRMB) is the least popular one with only 17 bullish hedge fund positions. 58.com Inc (NYSE:WUBA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard JEC might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
