Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. 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 analyze whether Bright Scholar Education Holdings Limited (NYSE:BEDU) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas.
Is Bright Scholar Education Holdings Limited (NYSE:BEDU) a healthy stock for your portfolio? The best stock pickers are reducing their bets on the stock. The number of bullish hedge fund bets retreated by 1 in recent months. Our calculations also showed that BEDU 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). BEDU was in 8 hedge funds’ portfolios at the end of December. There were 9 hedge funds in our database with BEDU holdings at the end of the previous quarter.
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 was 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’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.
Lei Zhang of Hillhouse Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. 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. Now let’s go over the new hedge fund action regarding Bright Scholar Education Holdings Limited (NYSE:BEDU).
Hedge fund activity in Bright Scholar Education Holdings Limited (NYSE:BEDU)
At the end of the fourth quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in BEDU 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.
More specifically, Hillhouse Capital Management was the largest shareholder of Bright Scholar Education Holdings Limited (NYSE:BEDU), with a stake worth $35.2 million reported as of the end of September. Trailing Hillhouse Capital Management was Indus Capital, which amassed a stake valued at $28.2 million. Serenity Capital, Renaissance Technologies, and D E Shaw 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 Indus Capital allocated the biggest weight to Bright Scholar Education Holdings Limited (NYSE:BEDU), around 5.53% of its 13F portfolio. Serenity Capital is also relatively very bullish on the stock, earmarking 3.73 percent of its 13F equity portfolio to BEDU.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace LLP. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified BEDU as a viable investment and initiated a position in the stock.
Let’s now review hedge fund activity in other stocks similar to Bright Scholar Education Holdings Limited (NYSE:BEDU). These stocks are Plantronics, Inc. (NYSE:PLT), United Fire Group, Inc. (NASDAQ:UFCS), Opera Limited (NASDAQ:OPRA), and Mesa Laboratories, Inc. (NASDAQ:MLAB). This group of stocks’ market caps are closest to BEDU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PLT | 11 | 44533 | -2 |
| UFCS | 6 | 10537 | -3 |
| OPRA | 15 | 22844 | 2 |
| MLAB | 10 | 110335 | 1 |
| Average | 10.5 | 47062 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $87 million in BEDU’s case. Opera Limited (NASDAQ:OPRA) is the most popular stock in this table. On the other hand United Fire Group, Inc. (NASDAQ:UFCS) is the least popular one with only 6 bullish hedge fund positions. Bright Scholar Education Holdings Limited (NYSE:BEDU) 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 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately BEDU wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BEDU investors were disappointed as the stock returned -28.1% 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 10 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.
