Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of BEST Inc. (NYSE:BEST).
BEST Inc. (NYSE:BEST) shareholders have witnessed an increase in activity from the world's largest hedge funds of late. BEST was in 14 hedge funds' portfolios at the end of the third quarter of 2019. There were 13 hedge funds in our database with BEST holdings at the end of the previous quarter. Our calculations also showed that BEST isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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.
[caption id="attachment_27480" align="alignnone" width="600"] Israel Englander of Millennium Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the recent hedge fund action regarding BEST Inc. (NYSE:BEST).
Hedge fund activity in BEST Inc. (NYSE:BEST)
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BEST 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.
When looking at the institutional investors followed by Insider Monkey, Michael Gelband's ExodusPoint Capital has the largest position in BEST Inc. (NYSE:BEST), worth close to $13.7 million, corresponding to 0.5% of its total 13F portfolio. Sitting at the No. 2 spot is Tiger Pacific Capital, led by Run Ye, Junji Takegami and Hoyon Hwang, holding a $10.8 million position; the fund has 3.4% of its 13F portfolio invested in the stock. Some other peers with similar optimism include Israel Englander's Millennium Management, Renaissance Technologies and David E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Tiger Pacific Capital allocated the biggest weight to BEST Inc. (NYSE:BEST), around 3.42% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, designating 0.48 percent of its 13F equity portfolio to BEST.
Consequently, some big names have been driving this bullishness. Aristeia Capital, managed by Robert Henry Lynch, created the most valuable position in BEST Inc. (NYSE:BEST). Aristeia Capital had $1.2 million invested in the company at the end of the quarter. Kenneth Tropin's Graham Capital Management also made a $1.2 million investment in the stock during the quarter. The following funds were also among the new BEST investors: Highbridge Capital Management, Steve Cohen's Point72 Asset Management, and Simon Sadler's Segantii Capital.
Let's now review hedge fund activity in other stocks similar to BEST Inc. (NYSE:BEST). These stocks are DiamondRock Hospitality Company (NYSE:DRH), Commercial Metals Company (NYSE:CMC), Diodes Incorporated (NASDAQ:DIOD), and Renasant Corporation (NASDAQ:RNST). This group of stocks' market caps resemble BEST's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DRH,16,116483,-1 CMC,17,233187,0 DIOD,21,71352,3 RNST,8,22648,-3 Average,15.5,110918,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $111 million. That figure was $47 million in BEST's case. Diodes Incorporated (NASDAQ:DIOD) is the most popular stock in this table. On the other hand Renasant Corporation (NASDAQ:RNST) is the least popular one with only 8 bullish hedge fund positions. BEST Inc. (NYSE:BEST) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on BEST as the stock returned 13.8% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.