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In this article we are going to use hedge fund sentiment as a tool and determine whether China Yuchai International Limited (NYSE:CYD) is a good investment 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.
Is CYD a good stock to buy now? China Yuchai International Limited (NYSE:CYD) shareholders have witnessed an increase in hedge fund interest recently. China Yuchai International Limited (NYSE:CYD) was in 10 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 11. Our calculations also showed that CYD 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Siegel of Two Sigma Advisors
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 15 best blue chip stocks 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we're going to view the recent hedge fund action encompassing China Yuchai International Limited (NYSE:CYD).
Do Hedge Funds Think CYD Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in CYD over the last 21 quarters. So, let's check out 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, Shah Capital Management, managed by Himanshu H. Shah, holds the number one position in China Yuchai International Limited (NYSE:CYD). Shah Capital Management has a $62.8 million position in the stock, comprising 33% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $11.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions comprise Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Francis Chou's Chou Associates Management and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Shah Capital Management allocated the biggest weight to China Yuchai International Limited (NYSE:CYD), around 32.96% of its 13F portfolio. Chou Associates Management is also relatively very bullish on the stock, earmarking 1.26 percent of its 13F equity portfolio to CYD.
With a general bullishness amongst the heavyweights, key money managers have jumped into China Yuchai International Limited (NYSE:CYD) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most valuable position in China Yuchai International Limited (NYSE:CYD). Marshall Wace LLP had $0.6 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $0.3 million investment in the stock during the quarter. The only other fund with a new position in the stock is Noam Gottesman's GLG Partners.
Let's also examine hedge fund activity in other stocks similar to China Yuchai International Limited (NYSE:CYD). We will take a look at Benchmark Electronics, Inc. (NYSE:BHE), Agenus Inc (NASDAQ:AGEN), Standex International Corp. (NYSE:SXI), TriCo Bancshares (NASDAQ:TCBK), Tucows Inc. (NYSE:TCX), Meridian Bioscience, Inc. (NASDAQ:VIVO), and Armada Hoffler Properties Inc (NYSE:AHH). This group of stocks' market valuations are closest to CYD's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BHE,10,21753,-4 AGEN,13,57826,-2 SXI,11,34962,-1 TCBK,10,22565,-1 TCX,8,73556,-1 VIVO,19,103498,-4 AHH,12,39523,0 Average,11.9,50526,-1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.9 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $80 million in CYD's case. Meridian Bioscience, Inc. (NASDAQ:VIVO) is the most popular stock in this table. On the other hand Tucows Inc. (NYSE:TCX) is the least popular one with only 8 bullish hedge fund positions. China Yuchai International Limited (NYSE:CYD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CYD is 44.4. 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately CYD wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CYD investors were disappointed as the stock returned -7.5% since the end of September (through 12/8) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.