We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether DouYu International Holdings Limited (NASDAQ:DOYU) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
DouYu International Holdings Limited (NASDAQ:DOYU) investors should pay attention to a decrease in hedge fund interest recently. Our calculations also showed that DOYU isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 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 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 stocks that are in our short portfolio.
Chase Coleman of Tiger Global
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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. Keeping this in mind let’s check out the new hedge fund action surrounding DouYu International Holdings Limited (NASDAQ:DOYU).
How have hedgies been trading DouYu International Holdings Limited (NASDAQ:DOYU)?
Heading into the first quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DOYU over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in DouYu International Holdings Limited (NASDAQ:DOYU) was held by Sylebra Capital Management, which reported holding $28.5 million worth of stock at the end of September. It was followed by Millennium Management with a $6.4 million position. Other investors bullish on the company included Tiger Global Management LLC, Guardian Point Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Sylebra Capital Management allocated the biggest weight to DouYu International Holdings Limited (NASDAQ:DOYU), around 1.12% of its 13F portfolio. Guardian Point Capital is also relatively very bullish on the stock, dishing out 0.91 percent of its 13F equity portfolio to DOYU.
Because DouYu International Holdings Limited (NASDAQ:DOYU) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of money managers who sold off their entire stakes last quarter. At the top of the heap, Anand Parekh’s Alyeska Investment Group dropped the biggest investment of the 750 funds watched by Insider Monkey, valued at an estimated $4.9 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $0.9 million worth. These moves are interesting, as total hedge fund interest fell by 4 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as DouYu International Holdings Limited (NASDAQ:DOYU) but similarly valued. These stocks are CNO Financial Group Inc (NYSE:CNO), Audentes Therapeutics, Inc. (NASDAQ:BOLD), Main Street Capital Corporation (NYSE:MAIN), and MGE Energy, Inc. (NASDAQ:MGEE). This group of stocks’ market valuations match DOYU’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNO | 23 | 336702 | 3 |
| BOLD | 47 | 1009425 | 21 |
| MAIN | 9 | 18678 | 4 |
| MGEE | 9 | 43218 | -5 |
| Average | 22 | 352006 | 5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $352 million. That figure was $42 million in DOYU’s case. Audentes Therapeutics, Inc. (NASDAQ:BOLD) is the most popular stock in this table. On the other hand Main Street Capital Corporation (NYSE:MAIN) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks DouYu International Holdings Limited (NASDAQ:DOYU) is even less popular than MAIN. Hedge funds clearly dropped the ball on DOYU 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on DOYU as the stock returned -11.8% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
