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Hedge Funds Are Dumping Qudian Inc. (QD)

Nina Todic

The 700+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Qudian Inc. (NYSE:QD).

Qudian Inc. (NYSE:QD) was in 12 hedge funds' portfolios at the end of September. QD has experienced a decrease in support from the world's most elite money managers in recent months. There were 22 hedge funds in our database with QD positions at the end of the previous quarter. Our calculations also showed that QD 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.

5 Most Popular Stocks Among Hedge Funds

Why do we pay any attention at all to hedge fund sentiment? 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_26388" align="aligncenter" width="468"] Lee Ainslie of Maverick Capital[/caption]

Lee Ainslie MAVERICK CAPITAL

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. Let's review the recent hedge fund action encompassing Qudian Inc. (NYSE:QD).

What does smart money think about Qudian Inc. (NYSE:QD)?

Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -45% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in QD 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, GLG Partners was the largest shareholder of Qudian Inc. (NYSE:QD), with a stake worth $36.1 million reported as of the end of September. Trailing GLG Partners was Arrowstreet Capital, which amassed a stake valued at $26.1 million. Indus Capital, Maverick Capital, and Citadel Investment Group 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 Indus Capital allocated the biggest weight to Qudian Inc. (NYSE:QD), around 1.23% of its 13F portfolio. Qtron Investments is also relatively very bullish on the stock, designating 0.3 percent of its 13F equity portfolio to QD.

Judging by the fact that Qudian Inc. (NYSE:QD) has experienced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there was a specific group of fund managers that decided to sell off their positions entirely in the third quarter. It's worth mentioning that Fang Zheng's Keywise Capital Management dumped the largest investment of the 750 funds tracked by Insider Monkey, valued at about $22.5 million in stock, and Jeffrey Talpins's Element Capital Management was right behind this move, as the fund sold off about $5.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 10 funds in the third quarter.

Let's now review hedge fund activity in other stocks similar to Qudian Inc. (NYSE:QD). These stocks are Xencor Inc (NASDAQ:XNCR), Compass Minerals International, Inc. (NYSE:CMP), Horace Mann Educators Corporation (NYSE:HMN), and LGI Homes Inc (NASDAQ:LGIH). This group of stocks' market valuations resemble QD's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XNCR,12,139670,0 CMP,13,139635,-3 HMN,13,35454,1 LGIH,14,130437,2 Average,13,111299,0 [/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 $111 million. That figure was $81 million in QD's case. LGI Homes Inc (NASDAQ:LGIH) is the most popular stock in this table. On the other hand Xencor Inc (NASDAQ:XNCR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Qudian Inc. (NYSE:QD) is even less popular than XNCR. Hedge funds dodged a bullet by taking a bearish stance towards QD. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately QD wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); QD investors were disappointed as the stock returned -28% during the fourth quarter (through the end of November) 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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