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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 DouYu International Holdings Limited (NASDAQ:DOYU)? The smart money sentiment can provide an answer to this question.
DouYu International Holdings Limited (NASDAQ:DOYU) was in 10 hedge funds' portfolios at the end of the third quarter of 2019. DOYU has seen an increase in enthusiasm from smart money recently. There were 0 hedge funds in our database with DOYU holdings at the end of the previous quarter. Our calculations also showed that DOYU isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to check out the recent hedge fund action surrounding DouYu International Holdings Limited (NASDAQ:DOYU).
Hedge fund activity in DouYu International Holdings Limited (NASDAQ:DOYU)
Heading into the fourth quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10 from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DOYU over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Sylebra Capital Management was the largest shareholder of DouYu International Holdings Limited (NASDAQ:DOYU), with a stake worth $25.7 million reported as of the end of September. Trailing Sylebra Capital Management was Citadel Investment Group, which amassed a stake valued at $6.7 million. Millennium Management, Alyeska Investment Group, and Tiger Global Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sylebra Capital Management allocated the biggest weight to DouYu International Holdings Limited (NASDAQ:DOYU), around 1.12% of its 13F portfolio. Guardian Point Capital is also relatively very bullish on the stock, setting aside 0.85 percent of its 13F equity portfolio to DOYU.
As one would reasonably expect, some big names were leading the bulls' herd. Sylebra Capital Management, managed by Daniel Patrick Gibson, initiated the most outsized position in DouYu International Holdings Limited (NASDAQ:DOYU). Sylebra Capital Management had $25.7 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $6.7 million position during the quarter. The following funds were also among the new DOYU investors: Israel Englander's Millennium Management, Anand Parekh's Alyeska Investment Group, and Chase Coleman's Tiger Global Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as DouYu International Holdings Limited (NASDAQ:DOYU) but similarly valued. These stocks are Power Integrations Inc (NASDAQ:POWI), Pattern Energy Group Inc (NASDAQ:PEGI), BlackLine, Inc. (NASDAQ:BL), and Genesis Energy, L.P. (NYSE:GEL). This group of stocks' market values are similar to DOYU's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position POWI,12,97704,3 PEGI,13,51412,1 BL,14,125393,-1 GEL,2,21756,-2 Average,10.25,74066,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $50 million in DOYU's case. BlackLine, Inc. (NASDAQ:BL) is the most popular stock in this table. On the other hand Genesis Energy, L.P. (NYSE:GEL) is the least popular one with only 2 bullish hedge fund positions. DouYu International Holdings Limited (NASDAQ:DOYU) is not the least popular stock in this group but hedge fund interest is still below average. 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DOYU wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DOYU investors were disappointed as the stock returned -8.9% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.