Were Hedge Funds Right About Ditching Baidu, Inc. (BIDU)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Baidu, Inc. (NASDAQ:BIDU) and determine whether the smart money was really smart about this stock.

Baidu, Inc. (NASDAQ:BIDU) was in 49 hedge funds’ portfolios at the end of the first quarter of 2020. BIDU has seen a decrease in hedge fund sentiment recently. There were 60 hedge funds in our database with BIDU positions at the end of the previous quarter. Our calculations also showed that BIDU isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Richard Driehaus of Driehaus Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s go over the fresh hedge fund action regarding Baidu, Inc. (NASDAQ:BIDU).

How have hedgies been trading Baidu, Inc. (NASDAQ:BIDU)?

At Q1’s end, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. By comparison, 53 hedge funds held shares or bullish call options in BIDU a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Baidu, Inc. (NASDAQ:BIDU), with a stake worth $575.5 million reported as of the end of September. Trailing Renaissance Technologies was Ariel Investments, which amassed a stake valued at $215.8 million. First Pacific Advisors LLC, Fisher Asset Management, and Citadel Investment Group 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 Hidden Lake Asset Management allocated the biggest weight to Baidu, Inc. (NASDAQ:BIDU), around 17.48% of its 13F portfolio. Yiheng Capital is also relatively very bullish on the stock, setting aside 4.21 percent of its 13F equity portfolio to BIDU.

Since Baidu, Inc. (NASDAQ:BIDU) has faced falling interest from the entirety of the hedge funds we track, logic holds that there were a few funds who sold off their full holdings in the first quarter. Interestingly, Brandon Haley’s Holocene Advisors cut the biggest stake of the “upper crust” of funds followed by Insider Monkey, worth about $135.8 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also dropped its stock, about $83.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 11 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Baidu, Inc. (NASDAQ:BIDU) but similarly valued. These stocks are Infosys Limited (NYSE:INFY), Public Storage (NYSE:PSA), Autodesk, Inc. (NASDAQ:ADSK), and Keurig Dr Pepper Inc. (NASDAQ:KDP). This group of stocks’ market caps resemble BIDU’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.25 hedge funds with bullish positions and the average amount invested in these stocks was $1235 million. That figure was $2235 million in BIDU’s case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand Infosys Limited (NYSE:INFY) is the least popular one with only 27 bullish hedge fund positions. Baidu, Inc. (NASDAQ:BIDU) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately BIDU wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BIDU were disappointed as the stock returned 19% 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 many of these stocks already outperformed the market so far this year.

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