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 Noah Holdings Limited (NYSE:NOAH) 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.
Noah Holdings Limited (NYSE:NOAH) investors should pay attention to a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that NOAH 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Kerr Neilson of Platinum Asset Management
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 we’re going to take a look at the latest hedge fund action surrounding Noah Holdings Limited (NYSE:NOAH).
What have hedge funds been doing with Noah Holdings Limited (NYSE:NOAH)?
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in NOAH a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Yiheng Capital, managed by Jonathan Guo, holds the largest position in Noah Holdings Limited (NYSE:NOAH). Yiheng Capital has a $166.1 million position in the stock, comprising 14.6% of its 13F portfolio. The second largest stake is held by Run Ye, Junji Takegami and Hoyon Hwang of Tiger Pacific Capital, with a $81.2 million position; 23.5% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish comprise Kerr Neilson’s Platinum Asset Management, Ted Kang’s Kylin Management and Campbell Wilson’s Old Well Partners. In terms of the portfolio weights assigned to each position Tiger Pacific Capital allocated the biggest weight to Noah Holdings Limited (NYSE:NOAH), around 23.48% of its 13F portfolio. Yiheng Capital is also relatively very bullish on the stock, setting aside 14.58 percent of its 13F equity portfolio to NOAH.
Seeing as Noah Holdings Limited (NYSE:NOAH) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of fund managers who sold off their positions entirely heading into Q4. Intriguingly, Lei Zhang’s Hillhouse Capital Management sold off the biggest investment of the 750 funds watched by Insider Monkey, valued at close to $14.1 million in stock, and Alok Agrawal’s Bloom Tree Partners was right behind this move, as the fund sold off about $10.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Noah Holdings Limited (NYSE:NOAH) but similarly valued. These stocks are Terex Corporation (NYSE:TEX), Heron Therapeutics Inc (NASDAQ:HRTX), Aimmune Therapeutics Inc (NASDAQ:AIMT), and SailPoint Technologies Holdings, Inc. (NYSE:SAIL). This group of stocks’ market values resemble NOAH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TEX | 22 | 291253 | 3 |
| HRTX | 19 | 497040 | 3 |
| AIMT | 13 | 164507 | -7 |
| SAIL | 25 | 250134 | -1 |
| Average | 19.75 | 300734 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $301 million. That figure was $356 million in NOAH’s case. SailPoint Technologies Holdings, Inc. (NYSE:SAIL) is the most popular stock in this table. On the other hand Aimmune Therapeutics Inc (NASDAQ:AIMT) is the least popular one with only 13 bullish hedge fund positions. Noah Holdings Limited (NYSE:NOAH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 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 beat the market by 4.2 percentage points. Unfortunately NOAH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NOAH investors were disappointed as the stock returned -34.8% during the same time period 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 most of these stocks already outperformed the market in 2020.
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.
