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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 Futu Holdings Limited (NASDAQ:FUTU)? The smart money sentiment can provide an answer to this question.
Is FUTU a good stock to buy now? Futu Holdings Limited (NASDAQ:FUTU) investors should pay attention to an increase in hedge fund interest of late. Futu Holdings Limited (NASDAQ:FUTU) was in 15 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 8. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 8 hedge funds in our database with FUTU holdings at the end of June. Our calculations also showed that FUTU 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.
John Overdeck 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. Keeping this in mind we're going to take a gander at the fresh hedge fund action regarding Futu Holdings Limited (NASDAQ:FUTU).
Do Hedge Funds Think FUTU Is A Good Stock To Buy Now?
At third quarter's end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 88% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FUTU over the last 21 quarters. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Futu Holdings Limited (NASDAQ:FUTU) was held by Arrowstreet Capital, which reported holding $23.4 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $19.8 million position. Other investors bullish on the company included Two Sigma Advisors, Think Investments, and Sylebra Capital Management. In terms of the portfolio weights assigned to each position Think Investments allocated the biggest weight to Futu Holdings Limited (NASDAQ:FUTU), around 2.33% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, dishing out 0.68 percent of its 13F equity portfolio to FUTU.
As one would reasonably expect, specific money managers have jumped into Futu Holdings Limited (NASDAQ:FUTU) headfirst. Think Investments, managed by Shashin Shah, assembled the biggest position in Futu Holdings Limited (NASDAQ:FUTU). Think Investments had $12.7 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $7.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Lei Zhang's Hillhouse Capital Management, Matthew L Pinz's Pinz Capital, and Benjamin A. Smith's Laurion Capital Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Futu Holdings Limited (NASDAQ:FUTU) but similarly valued. These stocks are Noble Energy, Inc. (NYSE:NBL), Pure Storage, Inc. (NYSE:PSTG), Kinsale Capital Group, Inc. (NASDAQ:KNSL), Houlihan Lokey Inc (NYSE:HLI), TFS Financial Corporation (NASDAQ:TFSL), Inovalon Holdings Inc (NASDAQ:INOV), and Healthcare Realty Trust Inc (NYSE:HR). This group of stocks' market valuations are closest to FUTU's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NBL,45,753639,7 PSTG,22,223929,-7 KNSL,16,47309,2 HLI,14,116876,-10 TFSL,9,119038,-2 INOV,20,112024,7 HR,18,166333,-4 Average,20.6,219878,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.6 hedge funds with bullish positions and the average amount invested in these stocks was $220 million. That figure was $103 million in FUTU's case. Noble Energy, Inc. (NYSE:NBL) is the most popular stock in this table. On the other hand TFS Financial Corporation (NASDAQ:TFSL) is the least popular one with only 9 bullish hedge fund positions. Futu Holdings Limited (NASDAQ:FUTU) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FUTU is 48.3. 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. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on FUTU as the stock returned 43.3% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.