Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
YY Inc (NASDAQ:YY) was in 17 hedge funds' portfolios at the end of September. YY investors should pay attention to a decrease in activity from the world's largest hedge funds recently. There were 22 hedge funds in our database with YY holdings at the end of the previous quarter. Our calculations also showed that YY 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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. We're going to check out the key hedge fund action surrounding YY Inc (NASDAQ:YY).
What does smart money think about YY Inc (NASDAQ:YY)?
At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in YY 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.
The largest stake in YY Inc (NASDAQ:YY) was held by Alkeon Capital Management, which reported holding $61.9 million worth of stock at the end of September. It was followed by Sylebra Capital Management with a $47 million position. Other investors bullish on the company included Discovery Capital Management, Tiger Pacific Capital, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Discovery Capital Management allocated the biggest weight to YY Inc (NASDAQ:YY), around 4.57% of its 13F portfolio. Tiger Pacific Capital is also relatively very bullish on the stock, dishing out 4.48 percent of its 13F equity portfolio to YY.
Seeing as YY Inc (NASDAQ:YY) has experienced bearish sentiment from hedge fund managers, it's easy to see that there were a few money managers that slashed their entire stakes heading into Q4. It's worth mentioning that Josh Resnick's Jericho Capital Asset Management cut the largest position of all the hedgies monitored by Insider Monkey, worth an estimated $59.5 million in stock, and Jeffrey Talpins's Element Capital Management was right behind this move, as the fund cut about $9.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as YY Inc (NASDAQ:YY) but similarly valued. We will take a look at First Financial Bankshares Inc (NASDAQ:FFIN), Cinemark Holdings, Inc. (NYSE:CNK), ALLETE Inc (NYSE:ALE), and AutoNation, Inc. (NYSE:AN). This group of stocks' market values match YY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FFIN,16,25822,4 CNK,19,232969,-3 ALE,19,278228,-5 AN,21,416097,-1 Average,18.75,238279,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $238 million. That figure was $192 million in YY's case. AutoNation, Inc. (NYSE:AN) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 16 bullish hedge fund positions. YY Inc (NASDAQ:YY) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on YY as the stock returned 13.4% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.