Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Baozun Inc (NASDAQ:BZUN).
Is Baozun Inc (NASDAQ:BZUN) an exceptional stock to buy now? Prominent investors are getting less optimistic. The number of long hedge fund bets decreased by 2 recently. Our calculations also showed that BZUN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
If you'd ask most market participants, hedge funds are viewed as slow, outdated investment tools of the past. While there are more than 8000 funds trading today, Our researchers choose to focus on the moguls of this group, around 850 funds. These money managers preside over most of the hedge fund industry's total capital, and by monitoring their first-class picks, Insider Monkey has figured out a few investment strategies that have historically defeated the broader indices. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_27480" align="aligncenter" width="400"] Israel Englander of Millennium Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to review the recent hedge fund action regarding Baozun Inc (NASDAQ:BZUN).
What have hedge funds been doing with Baozun Inc (NASDAQ:BZUN)?
At Q4's end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the third quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in BZUN a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, HBK Investments was the largest shareholder of Baozun Inc (NASDAQ:BZUN), with a stake worth $11.8 million reported as of the end of September. Trailing HBK Investments was Citadel Investment Group, which amassed a stake valued at $10.6 million. Citadel Investment Group, Millennium Management, and OZ 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 Oasis Management allocated the biggest weight to Baozun Inc (NASDAQ:BZUN), around 5.15% of its 13F portfolio. Kadensa Capital is also relatively very bullish on the stock, dishing out 1.88 percent of its 13F equity portfolio to BZUN.
Due to the fact that Baozun Inc (NASDAQ:BZUN) has experienced a decline in interest from the aggregate hedge fund industry, it's safe to say that there is a sect of hedge funds who were dropping their positions entirely heading into Q4. At the top of the heap, David Kowitz and Sheldon Kasowitz's Indus Capital sold off the biggest position of the 750 funds followed by Insider Monkey, valued at an estimated $15.6 million in stock, and Ted Kang's Kylin Management was right behind this move, as the fund said goodbye to about $8.5 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Baozun Inc (NASDAQ:BZUN) but similarly valued. We will take a look at Corrections Corp Of America (NYSE:CXW), BGC Partners, Inc. (NASDAQ:BGCP), Shenandoah Telecommunications Company (NASDAQ:SHEN), and Installed Building Products Inc (NYSE:IBP). This group of stocks' market valuations are closest to BZUN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CXW,25,199275,6 BGCP,27,292768,5 SHEN,10,81260,-7 IBP,24,178875,3 Average,21.5,188045,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $188 million. That figure was $45 million in BZUN's case. BGC Partners, Inc. (NASDAQ:BGCP) is the most popular stock in this table. On the other hand Shenandoah Telecommunications Company (NASDAQ:SHEN) is the least popular one with only 10 bullish hedge fund positions. Baozun Inc (NASDAQ:BZUN) is not the least popular stock in this group but hedge fund interest is still below average. 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 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on BZUN as the stock returned -12.8% during the same time period and outperformed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.