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 Uxin Limited (NASDAQ:UXIN) an outstanding stock to buy now? Hedge funds are taking a bullish view. The number of bullish hedge fund bets increased by 1 recently. Our calculations also showed that UXIN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). UXIN was in 4 hedge funds’ portfolios at the end of September. There were 3 hedge funds in our database with UXIN holdings at the end of the previous quarter.
Video: Click the image to 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 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 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.
Lei Zhang of Hillhouse Capital Management
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. Keeping this in mind we’re going to go over the recent hedge fund action encompassing Uxin Limited (NASDAQ:UXIN).
How are hedge funds trading Uxin Limited (NASDAQ:UXIN)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in UXIN over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Hillhouse Capital Management, managed by Lei Zhang, holds the largest position in Uxin Limited (NASDAQ:UXIN). Hillhouse Capital Management has a $23.1 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by Sculptor Capital, which holds a $0.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism comprise Israel Englander’s Millennium Management, Ken Griffin’s Citadel Investment Group and . In terms of the portfolio weights assigned to each position Hillhouse Capital Management allocated the biggest weight to Uxin Limited (NASDAQ:UXIN), around 0.32% of its 13F portfolio. Sculptor Capital is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to UXIN.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the largest position in Uxin Limited (NASDAQ:UXIN). Millennium Management had $0.1 million invested in the company at the end of the quarter.
Let’s go over hedge fund activity in other stocks similar to Uxin Limited (NASDAQ:UXIN). We will take a look at Banc of California, Inc. (NASDAQ:BANC), Conn’s, Inc. (NASDAQ:CONN), Mobileiron Inc (NASDAQ:MOBL), and AK Steel Holding Corporation (NYSE:AKS). This group of stocks’ market values resemble UXIN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BANC | 13 | 84719 | -1 |
| CONN | 16 | 133657 | -5 |
| MOBL | 17 | 127698 | 0 |
| AKS | 13 | 27000 | -1 |
| Average | 14.75 | 93269 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $24 million in UXIN’s case. Mobileiron Inc (NASDAQ:MOBL) is the most popular stock in this table. On the other hand Banc of California, Inc. (NASDAQ:BANC) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Uxin Limited (NASDAQ:UXIN) is even less popular than BANC. Hedge funds dodged a bullet by taking a bearish stance towards UXIN. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately UXIN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); UXIN investors were disappointed as the stock returned 1.6% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
