Amid an overall bull market, many stocks that smart money investors were collectively bullish on 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. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Fang Holdings Limited (NYSE:SFUN) ready to rally soon? Investors who are in the know are taking a bearish view. The number of long hedge fund positions fell by 1 lately. Our calculations also showed that SFUN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). SFUN was in 5 hedge funds’ portfolios at the end of the third quarter of 2019. There were 6 hedge funds in our database with SFUN positions at the end of the previous quarter.
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 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.
Paul Marshall of Marshall Wace
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 we’re going to review the fresh hedge fund action regarding Fang Holdings Limited (NYSE:SFUN).
What does smart money think about Fang Holdings Limited (NYSE:SFUN)?
Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SFUN over the last 17 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Hillhouse Capital Management was the largest shareholder of Fang Holdings Limited (NYSE:SFUN), with a stake worth $0.7 million reported as of the end of September. Trailing Hillhouse Capital Management was Millennium Management, which amassed a stake valued at $0.3 million. D E Shaw, Marshall Wace, and Citadel Investment Group 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 Hillhouse Capital Management allocated the biggest weight to Fang Holdings Limited (NYSE:SFUN), around 0.01% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, dishing out 0.0005 percent of its 13F equity portfolio to SFUN.
Seeing as Fang Holdings Limited (NYSE:SFUN) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there were a few hedgies who sold off their full holdings last quarter. Intriguingly, Nick Thakore’s Diametric Capital dumped the largest stake of the 750 funds watched by Insider Monkey, valued at about $0.1 million in stock, and Simon Sadler’s Segantii Capital was right behind this move, as the fund dropped about $0 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Fang Holdings Limited (NYSE:SFUN) but similarly valued. These stocks are Bank of Commerce Holdings (NASDAQ:BOCH), Spero Therapeutics, Inc. (NASDAQ:SPRO), BP Prudhoe Bay Royalty Trust (NYSE:BPT), and Shore Bancshares, Inc. (NASDAQ:SHBI). All of these stocks’ market caps resemble SFUN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BOCH | 5 | 11808 | 1 |
| SPRO | 7 | 32359 | -1 |
| BPT | 3 | 1306 | -2 |
| SHBI | 3 | 12669 | -1 |
| Average | 4.5 | 14536 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $1 million in SFUN’s case. Spero Therapeutics, Inc. (NASDAQ:SPRO) is the most popular stock in this table. On the other hand BP Prudhoe Bay Royalty Trust (NYSE:BPT) is the least popular one with only 3 bullish hedge fund positions. Fang Holdings Limited (NYSE:SFUN) 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. 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. Unfortunately SFUN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SFUN were disappointed as the stock returned -14.4% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
