Shares of Youku Tudou Inc (ADR) (NYSE:YOKU) tumbled as low as $24.60 per share on Friday, or over 10%, versus its closing price on Thursday. Youku appears to have been caught up in the wider nosedive of Chinese stocks on Friday, as there was no other trigger that would have spurred the stock downwards in such a way. Youku Tudou Inc is the largest internet television company in China and there are growing fears that the Chinese stock market is in a bubble that is likely to burst anytime soon. After the markets closed in China on Friday, those fears appear ready to be realized. The Shanghai Composite index slid 7.4% today, while the Shenzhen Composite, which is awash with technology stocks, dropped by 7.9%. The decrease in the Shanghai Composite index today is comparable to the Dow Jones Industrial Average losing over 1,300 points, TIME notes, while CNN Money says that hundreds of individual stocks in China lost the Chinese stock market daily limit of 10% within the day’s trading session.
Hedge funds tracked by Insider Monkey appear to have predicted this coming decline, especially in the case of Youku Tudou Inc. At the end of the first three months of 2015, a total of 14 of the hedge funds tracked by Insider Monkey were long in this stock, down 13% from the end of 2014. Hedge funds also decreased their total stakes in the first quarter by 33.72% to $322.23 million from $486.19 million at the end of 2014. This is slightly counterbalanced though by a 29.81% drop in the company’s share price in the first quarter.
We follow hedge funds because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 142%, outperforming the S&P 500 ETF by nearly 84 percentage points (see more details here).
We also follow insider transactions such as sales or purchases to deduce if a company’s top management are bullish on their firm’s stock. It should be noted, however, that no insider sales or purchases were recorded for Youku Tudou Inc (ADR) (NYSE:YOKU) during the first six months of the year.
With this, let’s examine the hedge fund transactions in Youku Tudou Inc (ADR) (NYSE:YOKU) of late.
Hedge fund activity in Youku Tudou Inc (ADR) (NYSE:YOKU)
There were still believers in the company, chief of which was Kerr Neilson‘s Platinum Asset Management, which had the biggest position in Youku Tudou Inc (ADR) (NYSE:YOKU) to end the first quarter, worth close to $152.9 million from 12.23 million shares. The second-most bullish hedge fund is Hillhouse Capital Management, managed by Lei Zhang, which held a $78.1 million position of 6.25 million shares, which made up 1.4% of its 13F portfolio. Some other members of the smart money with similar optimism encompass David Greenspan’s Slate Path Capital, William B. Gray’s Orbis Investment Management, and Scott Sinclair and Laurence Chang’s Cascabel Management.
Suffice to say, there were hedge funds which sold considerable stakes in Youku Tudou Inc (ADR) (NYSE:YOKU) during the quarter as well. It’s worth mentioning that Bain Capital‘s Brookside Capital dumped the largest investment out of the 700 funds monitored by Insider Monkey, totaling close to $22 million or about 1.24 million shares. Frank Slattery’s fund, Symmetry Peak Management, also said goodbye to its 226,200 call options, about $4 million worth.
With fears, which have not been dispelled, that the Chinese stock market is about to experience a bearish trend in the near future, in addition to fewer hedge funds being long on the stock, we recommend not having a long position on Youku Tudou Inc (ADR) (NYSE:YOKU) right now.
Disclosure: None
