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Should I Avoid Secoo Holding Limited (SECO)?

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·6 min read
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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 817 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 September 30th, about a month before the elections. In this article we look at what those investors think of Secoo Holding Limited (NASDAQ:SECO).

Is Secoo Holding Limited (NASDAQ:SECO) worth your attention right now? Hedge funds were turning less bullish. The number of long hedge fund positions retreated by 1 in recent months. Secoo Holding Limited (NASDAQ:SECO) was in 4 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 8. Our calculations also showed that SECO isn't among the 30 most popular stocks among hedge funds (click for Q3 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.

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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Izzy Englander of MILLENNIUM MANAGEMENT
Izzy Englander of MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let's take a gander at the new hedge fund action encompassing Secoo Holding Limited (NASDAQ:SECO).

How are hedge funds trading Secoo Holding Limited (NASDAQ:SECO)?

At Q3's end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in SECO a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Indus Capital, managed by David Kowitz and Sheldon Kasowitz, holds the number one position in Secoo Holding Limited (NASDAQ:SECO). Indus Capital has a $8.6 million position in the stock, comprising 1.3% of its 13F portfolio. The second most bullish fund manager is Frank Slattery of Symmetry Peak Management, with a $0.6 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish consist of Renaissance Technologies, Israel Englander's Millennium Management and . In terms of the portfolio weights assigned to each position Indus Capital allocated the biggest weight to Secoo Holding Limited (NASDAQ:SECO), around 1.27% of its 13F portfolio. Symmetry Peak Management is also relatively very bullish on the stock, earmarking 0.41 percent of its 13F equity portfolio to SECO.

Seeing as Secoo Holding Limited (NASDAQ:SECO) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds that decided to sell off their positions entirely by the end of the third quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the largest stake of all the hedgies followed by Insider Monkey, comprising close to $0.1 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dumped its stock, about $0.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks similar to Secoo Holding Limited (NASDAQ:SECO). These stocks are Protective Insurance Corporation (NASDAQ:PTVCB), Regional Management Corp (NYSE:RM), Gaia, Inc. (NASDAQ:GAIA), CorMedix Inc. (NYSE:CRMD), Saratoga Investment Corp (NYSE:SAR), Nymox Pharmaceutical Corporation (NASDAQ:NYMX), and PolyPid Ltd. (NASDAQ:PYPD). This group of stocks' market values resemble SECO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PTVCB,5,12437,0 RM,13,46680,-3 GAIA,15,32144,2 CRMD,5,12462,2 SAR,5,5782,-2 NYMX,1,88,-1 PYPD,2,3226,-3 Average,6.6,16117,-0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.6 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $10 million in SECO's case. Gaia, Inc. (NASDAQ:GAIA) is the most popular stock in this table. On the other hand Nymox Pharmaceutical Corporation (NASDAQ:NYMX) is the least popular one with only 1 bullish hedge fund positions. Secoo Holding Limited (NASDAQ:SECO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SECO is 29.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on SECO as the stock returned 26.2% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.

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

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