Was The Smart Money Right About Piling Into Bilibili Inc. (BILI)?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Bilibili Inc. (NASDAQ:BILI) to find out whether there were any major changes in hedge funds’ views.

Is Bilibili Inc. (NASDAQ:BILI) the right pick for your portfolio? The best stock pickers were taking an optimistic view. The number of long hedge fund positions went up by 9 lately. Bilibili Inc. (NASDAQ:BILI) was in 46 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 37. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that BILI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 37 hedge funds in our database with BILI positions at the end of the third 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 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 124 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.

Lei Zhang of Hillhouse Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to review the recent hedge fund action encompassing Bilibili Inc. (NASDAQ:BILI).

Do Hedge Funds Think BILI Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BILI over the last 22 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Bilibili Inc. (NASDAQ:BILI) was held by Lone Pine Capital, which reported holding $514.7 million worth of stock at the end of December. It was followed by Alkeon Capital Management with a $489.5 million position. Other investors bullish on the company included Yiheng Capital, Hillhouse Capital Management, and Boyu Capital. In terms of the portfolio weights assigned to each position Boyu Capital allocated the biggest weight to Bilibili Inc. (NASDAQ:BILI), around 49.53% of its 13F portfolio. Yiheng Capital is also relatively very bullish on the stock, dishing out 22.25 percent of its 13F equity portfolio to BILI.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Lone Pine Capital, established the most outsized position in Bilibili Inc. (NASDAQ:BILI). Lone Pine Capital had $514.7 million invested in the company at the end of the quarter. Xiaomeng Tong’s Boyu Capital also initiated a $269.5 million position during the quarter. The following funds were also among the new BILI investors: Alex Sacerdote’s Whale Rock Capital Management, Andreas Halvorsen’s Viking Global, and Simon Sadler’s Segantii Capital.

Let’s check out hedge fund activity in other stocks similar to Bilibili Inc. (NASDAQ:BILI). We will take a look at Eversource Energy (NYSE:ES), Public Service Enterprise Group Incorporated (NYSE:PEG), Otis Worldwide Corporation (NYSE:OTIS), Rockwell Automation Inc. (NYSE:ROK), EOG Resources Inc (NYSE:EOG), Banco Bradesco SA (NYSE:BBD), and WEC Energy Group, Inc. (NYSE:WEC). This group of stocks’ market valuations resemble BILI’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.3 hedge funds with bullish positions and the average amount invested in these stocks was $777 million. That figure was $3084 million in BILI’s case. Otis Worldwide Corporation (NYSE:OTIS) is the most popular stock in this table. On the other hand Banco Bradesco SA (NYSE:BBD) is the least popular one with only 17 bullish hedge fund positions. Bilibili Inc. (NASDAQ:BILI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BILI is 74.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on BILI as the stock returned 29.3% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.