Is MOGU Inc. (NYSE:MOGU) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
MOGU Inc. (NYSE:MOGU) was in 2 hedge funds' portfolios at the end of the third quarter of 2019. MOGU investors should be aware of a decrease in support from the world's most elite money managers recently. There were 3 hedge funds in our database with MOGU holdings at the end of the previous quarter. Our calculations also showed that MOGU isn't among the 30 most popular stocks among hedge funds (see 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to analyze the new hedge fund action encompassing MOGU Inc. (NYSE:MOGU).
How have hedgies been trading MOGU Inc. (NYSE:MOGU)?
Heading into the fourth quarter of 2019, a total of 2 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MOGU over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Hillhouse Capital Management held the most valuable stake in MOGU Inc. (NYSE:MOGU), which was worth $26.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $0.1 million worth of shares.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified MOGU as a viable investment and initiated a position in the stock.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as MOGU Inc. (NYSE:MOGU) but similarly valued. These stocks are MutualFirst Financial, Inc. (NASDAQ:MFSF), Reliant Bancorp, Inc. (NASDAQ:RBNC), Kindred Biosciences Inc (NASDAQ:KIN), and Provention Bio, Inc. (NASDAQ:PRVB). This group of stocks' market caps are closest to MOGU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MFSF,3,26953,0 RBNC,1,432,0 KIN,7,79753,-2 PRVB,8,15344,5 Average,4.75,30621,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $26 million in MOGU's case. Provention Bio, Inc. (NASDAQ:PRVB) is the most popular stock in this table. On the other hand Reliant Bancorp, Inc. (NASDAQ:RBNC) is the least popular one with only 1 bullish hedge fund positions. MOGU Inc. (NYSE:MOGU) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately MOGU wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MOGU investors were disappointed as the stock returned -18.9% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.