Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds.
58.com Inc (NYSE:WUBA) investors should be aware of a decrease in enthusiasm from smart money recently. Our calculations also showed that WUBA isn't among the 30 most popular stocks among hedge funds (view the video below). 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 some fund managers who are betting on Dow reaching 40000 in a year, 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 analyze the fresh hedge fund action regarding 58.com Inc (NYSE:WUBA).
How are hedge funds trading 58.com Inc (NYSE:WUBA)?
At Q2's end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the first quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in WUBA a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Lakewood Capital Management held the most valuable stake in 58.com Inc (NYSE:WUBA), which was worth $74.9 million at the end of the second quarter. On the second spot was Platinum Asset Management which amassed $73 million worth of shares. Moreover, GMT Capital, GLG Partners, and Marshall Wace LLP were also bullish on 58.com Inc (NYSE:WUBA), allocating a large percentage of their portfolios to this stock.
Since 58.com Inc (NYSE:WUBA) has experienced falling interest from the smart money, it's easy to see that there was a specific group of hedgies who sold off their full holdings last quarter. It's worth mentioning that Genevieve Kahr's Ailanthus Capital Management dropped the biggest position of the "upper crust" of funds watched by Insider Monkey, valued at an estimated $13 million in stock, and Run Ye, Junji Takegami and Hoyon Hwang's Tiger Pacific Capital was right behind this move, as the fund dropped about $9.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as 58.com Inc (NYSE:WUBA) but similarly valued. These stocks are Huntington Ingalls Industries Inc (NYSE:HII), Federal Realty Investment Trust (NYSE:FRT), The Mosaic Company (NYSE:MOS), and DaVita Inc (NYSE:DVA). All of these stocks' market caps match WUBA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HII,23,668970,-8 FRT,23,222584,6 MOS,28,973892,-1 DVA,36,3435086,0 Average,27.5,1325133,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $1325 million. That figure was $435 million in WUBA's case. DaVita Inc (NYSE:DVA) is the most popular stock in this table. On the other hand Huntington Ingalls Industries Inc (NYSE:HII) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks 58.com Inc (NYSE:WUBA) is even less popular than HII. Hedge funds dodged a bullet by taking a bearish stance towards WUBA. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately WUBA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); WUBA investors were disappointed as the stock returned -20.7% 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 so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.