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We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Bilibili Inc. (NASDAQ:BILI).
Is Bilibili Inc. (NASDAQ:BILI) a healthy stock for your portfolio? Prominent investors are reducing their bets on the stock. The number of bullish hedge fund bets decreased by 5 recently. Our calculations also showed that BILI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). BILI was in 18 hedge funds' portfolios at the end of September. There were 23 hedge funds in our database with BILI holdings 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' 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 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 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.
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Philippe Laffont of Coatue Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's take a look at the latest hedge fund action surrounding Bilibili Inc. (NASDAQ:BILI).
What does smart money think about Bilibili Inc. (NASDAQ:BILI)?
Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in BILI over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in Bilibili Inc. (NASDAQ:BILI) was held by Hillhouse Capital Management, which reported holding $181.2 million worth of stock at the end of September. It was followed by Yiheng Capital with a $89.2 million position. Other investors bullish on the company included Tiger Pacific Capital, Alkeon Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Tiger Pacific Capital allocated the biggest weight to Bilibili Inc. (NASDAQ:BILI), around 12.33% of its 13F portfolio. Yiheng Capital is also relatively very bullish on the stock, setting aside 10.92 percent of its 13F equity portfolio to BILI.
Because Bilibili Inc. (NASDAQ:BILI) has experienced falling interest from the aggregate hedge fund industry, it's easy to see that there were a few hedge funds that elected to cut their positions entirely heading into Q4. At the top of the heap, Daniel Sundheim's D1 Capital Partners dropped the largest investment of the 750 funds monitored by Insider Monkey, worth about $109.4 million in stock. Josh Resnick's fund, Jericho Capital Asset Management, also cut its stock, about $93.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 5 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to Bilibili Inc. (NASDAQ:BILI). We will take a look at Grupo Aeroportuario del Sureste (NYSE:ASR), Ascendis Pharma A/S (NASDAQ:ASND), Intercorp Financial Services Inc. (NYSE:IFS), and YY Inc (NASDAQ:YY). This group of stocks' market valuations resemble BILI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ASR,4,38248,-3 ASND,33,2023367,0 IFS,3,9694,3 YY,17,192246,-5 Average,14.25,565889,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $566 million. That figure was $384 million in BILI's case. Ascendis Pharma A/S (NASDAQ:ASND) is the most popular stock in this table. On the other hand Intercorp Financial Services Inc. (NYSE:IFS) is the least popular one with only 3 bullish hedge fund positions. Bilibili Inc. (NASDAQ:BILI) is not the most popular stock in this group but hedge fund interest is still above 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. Hedge funds were also right about betting on BILI as the stock returned 22.4% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.