The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Futu Holdings Limited (NASDAQ:FUTU) based on those filings.
Hedge fund interest in Futu Holdings Limited (NASDAQ:FUTU) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare FUTU to other stocks including Two Harbors Investment Corp (NYSE:TWO), Cedar Fair, L.P. (NYSE:FUN), and Chart Industries, Inc. (NASDAQ:GTLS) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 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. 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.
Paul Marshall of Marshall Wace
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 gander at the key hedge fund action encompassing Futu Holdings Limited (NASDAQ:FUTU).
What have hedge funds been doing with Futu Holdings Limited (NASDAQ:FUTU)?
At Q1’s end, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in FUTU a year ago. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in Futu Holdings Limited (NASDAQ:FUTU) was held by Citadel Investment Group, which reported holding $0.3 million worth of stock at the end of September. It was followed by Millennium Management with a $0.1 million position. The only other hedge fund that is bullish on the company was Marshall Wace LLP.
Since Futu Holdings Limited (NASDAQ:FUTU) has faced bearish sentiment from the smart money, we can see that there is a sect of hedgies who sold off their entire stakes heading into Q4. It’s worth mentioning that Leung Chi Kit’s Kadensa Capital said goodbye to the largest investment of the 750 funds watched by Insider Monkey, comprising close to $0.4 million in stock. Renaissance Technologies, also sold off its stock, about $0.3 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Futu Holdings Limited (NASDAQ:FUTU). These stocks are Two Harbors Investment Corp (NYSE:TWO), Cedar Fair, L.P. (NYSE:FUN), Chart Industries, Inc. (NASDAQ:GTLS), and Huron Consulting Group Inc. (NASDAQ:HURN). All of these stocks’ market caps resemble FUTU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TWO | 24 | 32472 | 4 |
| FUN | 10 | 29631 | 1 |
| GTLS | 21 | 120048 | 2 |
| HURN | 17 | 57403 | 3 |
| Average | 18 | 59889 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $0 million in FUTU’s case. Two Harbors Investment Corp (NYSE:TWO) is the most popular stock in this table. On the other hand Cedar Fair, L.P. (NYSE:FUN) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Futu Holdings Limited (NASDAQ:FUTU) is even less popular than FUN. Hedge funds clearly dropped the ball on FUTU as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds 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 and still beat the market by 15.6 percentage points. A small number of hedge funds were also right about betting on FUTU as the stock returned 45.9% so far in the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.