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Did Hedge Funds Drop The Ball On Bitauto Hldg Ltd (BITA) ?

Reymerlyn Martin

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Bitauto Hldg Ltd (NYSE:BITA)? The smart money sentiment can provide an answer to this question.

Bitauto Hldg Ltd (NYSE:BITA) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds' portfolios at the end of June. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Community Trust Bancorp, Inc. (NASDAQ:CTBI), Organogenesis Holdings Inc. (NASDAQ:ORGO), and Kimbell Royalty Partners (NYSE:KRP) to gather more data points. Our calculations also showed that BITA isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 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.

Kerr Neilson

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the fresh hedge fund action regarding Bitauto Hldg Ltd (NYSE:BITA).

What have hedge funds been doing with Bitauto Hldg Ltd (NYSE:BITA)?

At the end of the second quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 5 hedge funds held shares or bullish call options in BITA a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

BITA_oct2019

The largest stake in Bitauto Hldg Ltd (NYSE:BITA) was held by Millennium Management, which reported holding $5.5 million worth of stock at the end of March. It was followed by Platinum Asset Management with a $1.7 million position. Other investors bullish on the company included PEAK6 Capital Management, D E Shaw, and PEAK6 Capital Management.

Seeing as Bitauto Hldg Ltd (NYSE:BITA) has witnessed declining sentiment from the smart money, it's safe to say that there is a sect of hedge funds that slashed their full holdings by the end of the second quarter. Intriguingly, Ken Griffin's Citadel Investment Group sold off the biggest stake of all the hedgies tracked by Insider Monkey, totaling an estimated $0.4 million in stock, and Daniel S. Och's OZ Management was right behind this move, as the fund dropped about $0.3 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Bitauto Hldg Ltd (NYSE:BITA) but similarly valued. We will take a look at Community Trust Bancorp, Inc. (NASDAQ:CTBI), Organogenesis Holdings Inc. (NASDAQ:ORGO), Kimbell Royalty Partners, LP (NYSE:KRP), and Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM). This group of stocks' market caps resemble BITA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTBI,6,19594,-2 ORGO,2,328,-2 KRP,5,17409,0 RYTM,10,148953,-1 Average,5.75,46571,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $11 million in BITA's case. Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) is the most popular stock in this table. On the other hand Organogenesis Holdings Inc. (NASDAQ:ORGO) is the least popular one with only 2 bullish hedge fund positions. Bitauto Hldg Ltd (NYSE:BITA) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on BITA as the stock returned 43% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.

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