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Hailiang Education Group Inc. (HLG): Are Hedge Funds Right About This Stock?

Nina Todic

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by more than 8 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Hailiang Education Group Inc. (NASDAQ:HLG) from the perspective of those elite funds.

Hailiang Education Group Inc. (NASDAQ:HLG) was in 3 hedge funds' portfolios at the end of the third quarter of 2019. HLG investors should pay attention to an increase in support from the world's most elite money managers recently. There were 2 hedge funds in our database with HLG positions at the end of the previous quarter. Our calculations also showed that HLG isn't among the 30 most popular stocks among hedge funds.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's check out the recent hedge fund action encompassing Hailiang Education Group Inc. (NASDAQ:HLG).

How are hedge funds trading Hailiang Education Group Inc. (NASDAQ:HLG)?

At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in HLG a year ago. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with HLG Positions

Among these funds, Renaissance Technologies held the most valuable stake in Hailiang Education Group Inc. (NASDAQ:HLG), which was worth $6.8 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $0.3 million worth of shares. Citadel Investment Group was 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 Renaissance Technologies allocated the biggest weight to Hailiang Education Group Inc. (NASDAQ:HLG), around 0.01% of its portfolio. Two Sigma Advisors is also relatively very bullish on the stock, earmarking 0.0007 percent of its 13F equity portfolio to HLG.

Consequently, key hedge funds have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, established the most valuable position in Hailiang Education Group Inc. (NASDAQ:HLG). Citadel Investment Group had $0.3 million invested in the company at the end of the quarter.

Let's go over hedge fund activity in other stocks similar to Hailiang Education Group Inc. (NASDAQ:HLG). We will take a look at WestAmerica Bancorporation (NASDAQ:WABC), SPX FLOW, Inc. (NYSE:FLOW), Aircastle Limited (NYSE:AYR), and Cardiovascular Systems Inc (NASDAQ:CSII). All of these stocks' market caps are similar to HLG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WABC,11,22436,1 FLOW,12,152618,-4 AYR,14,89197,2 CSII,15,126566,-2 Average,13,97704,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $98 million. That figure was $7 million in HLG's case. Cardiovascular Systems Inc (NASDAQ:CSII) is the most popular stock in this table. On the other hand WestAmerica Bancorporation (NASDAQ:WABC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Hailiang Education Group Inc. (NASDAQ:HLG) is even less popular than WABC. Hedge funds dodged a bullet by taking a bearish stance towards HLG. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately HLG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HLG investors were disappointed as the stock returned 2.5% during the fourth quarter (through 11/22) 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 so far in Q4.

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

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