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Did Hedge Funds Drop The Ball On Baozun Inc (BZUN)?

Nina Todic

Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. An average long/short hedge fund returned only 5% due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' stock picks rather than directly investing in hedge funds. 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 Baozun Inc (NASDAQ:BZUN).

Baozun Inc (NASDAQ:BZUN) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Our calculations also showed that bzun isn't among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Izzy Englander of MILLENNIUM MANAGEMENT

We're going to take a gander at the recent hedge fund action regarding Baozun Inc (NASDAQ:BZUN).

How have hedgies been trading Baozun Inc (NASDAQ:BZUN)?

At the end of the fourth quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in BZUN a year ago. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

No of Hedge Funds with BZUN Positions

More specifically, Laurion Capital Management was the largest shareholder of Baozun Inc (NASDAQ:BZUN), with a stake worth $10.9 million reported as of the end of December. Trailing Laurion Capital Management was Citadel Investment Group, which amassed a stake valued at $10.4 million. Indus Capital, Millennium Management, and Clough Capital Partners were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Baozun Inc (NASDAQ:BZUN) has faced falling interest from the smart money, it's safe to say that there exists a select few hedgies who sold off their positions entirely in the third quarter. It's worth mentioning that Ted Kang's Kylin Management dropped the biggest stake of all the hedgies monitored by Insider Monkey, valued at about $24.3 million in stock. David Keidan's fund, Buckingham Capital Management, also dumped its stock, about $8.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds in the third quarter.

Let's go over hedge fund activity in other stocks similar to Baozun Inc (NASDAQ:BZUN). These stocks are Stepan Company (NYSE:SCL), Crescent Point Energy Corp (NYSE:CPG), Coca-Cola Consolidated, Inc. (NASDAQ:COKE), and The RMR Group Inc. (NASDAQ:RMR). This group of stocks' market caps are closest to BZUN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SCL,12,35740,2 CPG,16,82975,4 COKE,7,4650,-2 RMR,14,42211,5 Average,12.25,41394,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $43 million in BZUN's case. Crescent Point Energy Corp (NYSE:CPG) is the most popular stock in this table. On the other hand Coca-Cola Consolidated, Inc. (NASDAQ:COKE) is the least popular one with only 7 bullish hedge fund positions. Baozun Inc (NASDAQ:BZUN) 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 BZUN as the stock returned 48.9% 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.

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