The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let's look at how this market volatility affected the sentiment of hedge funds towards YY Inc (NASDAQ:YY), and what that likely means for the prospects of the company and its stock.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's view the key hedge fund action regarding YY Inc (NASDAQ:YY).
What does the smart money think about YY Inc (NASDAQ:YY)?
At Q4's end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in YY over the last 14 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.
The largest stake in YY Inc (NASDAQ:YY) was held by Alkeon Capital Management, which reported holding $37.4 million worth of stock at the end of September. It was followed by Lakewood Capital Management with a $24.8 million position. Other investors bullish on the company included Renaissance Technologies, Sylebra Capital Management, and Kerrisdale Capital.
Because YY Inc (NASDAQ:YY) has experienced a decline in interest from the smart money, it's easy to see that there exists a select few hedgies that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, Lei Zhang's Hillhouse Capital Management dropped the largest position of all the hedgies monitored by Insider Monkey, valued at an estimated $14.5 million in stock. Lee Ainslie's fund, Maverick Capital, also dumped its stock, about $6.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks similar to YY Inc (NASDAQ:YY). We will take a look at DCP Midstream LP (NYSE:DCP), Sea Limited (NYSE:SE), AU Optronics Corp. (NYSE:AUO), and MGIC Investment Corporation (NYSE:MTG). All of these stocks' market caps match YY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DCP,5,18039,0 SE,14,335436,-4 AUO,9,58301,-1 MTG,35,358474,5 Average,15.75,192563,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $193 million. That figure was $149 million in YY's case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 5 bullish hedge fund positions. YY Inc (NASDAQ:YY) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on YY as the stock returned 47.8% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.