Is 21Vianet Group Inc (NASDAQ:VNET) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is 21Vianet Group Inc (NASDAQ:VNET) a superb investment right now? Prominent investors are taking a bearish view. The number of bullish hedge fund bets went down by 1 recently. Our calculations also showed that VNET isn't among the 30 most popular stocks among hedge funds (see the video below). VNET was in 17 hedge funds' portfolios at the end of the second quarter of 2019. There were 18 hedge funds in our database with VNET positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the key hedge fund action encompassing 21Vianet Group Inc (NASDAQ:VNET).
How are hedge funds trading 21Vianet Group Inc (NASDAQ:VNET)?
At Q2's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VNET over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Sylebra Capital Management held the most valuable stake in 21Vianet Group Inc (NASDAQ:VNET), which was worth $20.8 million at the end of the second quarter. On the second spot was Dalton Investments which amassed $12 million worth of shares. Moreover, Renaissance Technologies, D E Shaw, and Two Sigma Advisors were also bullish on 21Vianet Group Inc (NASDAQ:VNET), allocating a large percentage of their portfolios to this stock.
Due to the fact that 21Vianet Group Inc (NASDAQ:VNET) has experienced bearish sentiment from hedge fund managers, it's easy to see that there was a specific group of fund managers that elected to cut their positions entirely in the second quarter. It's worth mentioning that David Costen Haley's HBK Investments sold off the largest investment of the 750 funds followed by Insider Monkey, valued at an estimated $0.4 million in stock, and Minhua Zhang's Weld Capital Management was right behind this move, as the fund dropped about $0.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds in the second quarter.
Let's go over hedge fund activity in other stocks similar to 21Vianet Group Inc (NASDAQ:VNET). These stocks are ServisFirst Bancshares, Inc. (NASDAQ:SFBS), TransAlta Corporation (NYSE:TAC), USANA Health Sciences, Inc. (NYSE:USNA), and Tower Semiconductor Ltd. (NASDAQ:TSEM). This group of stocks' market valuations are similar to VNET's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SFBS,9,12767,-1 TAC,9,29727,-2 USNA,13,248443,-9 TSEM,11,236662,-1 Average,10.5,131900,-3.25 [/table]
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 $132 million. That figure was $51 million in VNET's case. USANA Health Sciences, Inc. (NYSE:USNA) is the most popular stock in this table. On the other hand ServisFirst Bancshares, Inc. (NASDAQ:SFBS) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks 21Vianet Group Inc (NASDAQ:VNET) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately VNET wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VNET were disappointed as the stock returned -2.2% during the third quarter 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.