How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding JOYY Inc. (NASDAQ:YY) and determine whether hedge funds had an edge regarding this stock.
Is JOYY Inc. (NASDAQ:YY) ready to rally soon? The best stock pickers were taking a bullish view. The number of bullish hedge fund bets went up by 13 in recent months. JOYY Inc. (NASDAQ:YY) was in 28 hedge funds' portfolios at the end of June. The all time high for this statistics is 30. Our calculations also showed that YY isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 15 hedge funds in our database with YY holdings at the end of March. Video: Watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Lei Zhang of Hillhouse Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let's go over the key hedge fund action encompassing JOYY Inc. (NASDAQ:YY).
What have hedge funds been doing with JOYY Inc. (NASDAQ:YY)?
At Q2's end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 87% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards YY over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Alkeon Capital Management was the largest shareholder of JOYY Inc. (NASDAQ:YY), with a stake worth $134.8 million reported as of the end of September. Trailing Alkeon Capital Management was Sylebra Capital Management, which amassed a stake valued at $101.2 million. Composite Capital, OZ Management, and York Capital 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 Composite Capital allocated the biggest weight to JOYY Inc. (NASDAQ:YY), around 8.78% of its 13F portfolio. Blue Grotto Capital is also relatively very bullish on the stock, setting aside 4.86 percent of its 13F equity portfolio to YY.
Now, key hedge funds were breaking ground themselves. Composite Capital, managed by David Ma, established the largest position in JOYY Inc. (NASDAQ:YY). Composite Capital had $88.7 million invested in the company at the end of the quarter. Daniel S. Och's OZ Management also initiated a $71.2 million position during the quarter. The following funds were also among the new YY investors: James Dinan's York Capital Management, Lei Zhang's Hillhouse Capital Management, and James Dinan's York Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as JOYY Inc. (NASDAQ:YY) but similarly valued. These stocks are Nuance Communications Inc. (NASDAQ:NUAN), The Toro Company (NYSE:TTC), Lincoln National Corporation (NYSE:LNC), Bill.com Holdings, Inc. (NYSE:BILL), Knight-Swift Transportation Holdings Inc. (NYSE:KNX), Bright Horizons Family Solutions Inc (NYSE:BFAM), and Huntington Ingalls Industries Inc (NYSE:HII). This group of stocks' market values are closest to YY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NUAN,44,1827721,2 TTC,31,702703,7 LNC,34,493924,8 BILL,52,1196788,30 KNX,39,466487,7 BFAM,30,217350,3 HII,30,272167,9 Average,37.1,739591,9.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.1 hedge funds with bullish positions and the average amount invested in these stocks was $740 million. That figure was $586 million in YY's case. Bill.com Holdings, Inc. (NYSE:BILL) is the most popular stock in this table. On the other hand Bright Horizons Family Solutions Inc (NYSE:BFAM) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks JOYY Inc. (NASDAQ:YY) is even less popular than BFAM. Our overall hedge fund sentiment score for YY is 33.5. 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. Hedge funds dodged a bullet by taking a bearish stance towards YY. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th but managed to beat the market by 17.7 percentage points. Unfortunately YY wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); YY investors were disappointed as the stock returned -12.6% since the end of Q2 (through 9/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
Get real-time email alerts: Follow Joyy Inc. (NASDAQ:YY)
Disclosure: None. This article was originally published at Insider Monkey.