Do Hedge Funds Love New Oriental Education & Technology Group Inc. (EDU)?
The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded New Oriental Education & Technology Group Inc. (NYSE:EDU) and determine whether the smart money was really smart about this stock.
New Oriental Education & Technology Group Inc. (NYSE:EDU) investors should be aware of a decrease in activity from the world's largest hedge funds of late. New Oriental Education & Technology Group Inc. (NYSE:EDU) was in 39 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 50. There were 42 hedge funds in our database with EDU holdings at the end of March. Our calculations also showed that EDU 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.
Chase Coleman
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. 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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we're going to check out the recent hedge fund action regarding New Oriental Education & Technology Group Inc. (NYSE:EDU).
How have hedgies been trading New Oriental Education & Technology Group Inc. (NYSE:EDU)?
Heading into the third quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. By comparison, 32 hedge funds held shares or bullish call options in EDU a year ago. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in New Oriental Education & Technology Group Inc. (NYSE:EDU), which was worth $359 million at the end of the third quarter. On the second spot was Tiger Global Management LLC which amassed $278.9 million worth of shares. Alkeon Capital Management, GQG Partners, and Farallon Capital 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 Kylin Management allocated the biggest weight to New Oriental Education & Technology Group Inc. (NYSE:EDU), around 17.42% of its 13F portfolio. Miura Global Management is also relatively very bullish on the stock, designating 7.84 percent of its 13F equity portfolio to EDU.
Seeing as New Oriental Education & Technology Group Inc. (NYSE:EDU) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there were a few hedgies who sold off their full holdings heading into Q3. It's worth mentioning that Gabriel Plotkin's Melvin Capital Management sold off the biggest stake of the "upper crust" of funds monitored by Insider Monkey, comprising about $285.6 million in stock, and Larry Chen and Terry Zhang's Tairen Capital was right behind this move, as the fund dropped about $67.2 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds heading into Q3.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as New Oriental Education & Technology Group Inc. (NYSE:EDU) but similarly valued. These stocks are Canadian Natural Resources Limited (NYSE:CNQ), AMETEK, Inc. (NYSE:AME), AmerisourceBergen Corporation (NYSE:ABC), Carvana Co. (NYSE:CVNA), Alexandria Real Estate Equities Inc (NYSE:ARE), Realty Income Corporation (NYSE:O), and Hilton Worldwide Holdings Inc (NYSE:HLT). This group of stocks' market caps resemble EDU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNQ,28,556305,2 AME,40,952884,7 ABC,40,646674,-1 CVNA,57,3587877,5 ARE,18,53382,-11 O,17,185310,-8 HLT,53,4467377,10 Average,36.1,1492830,0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.1 hedge funds with bullish positions and the average amount invested in these stocks was $1493 million. That figure was $1379 million in EDU's case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand Realty Income Corporation (NYSE:O) is the least popular one with only 17 bullish hedge fund positions. New Oriental Education & Technology Group Inc. (NYSE:EDU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EDU is 52.9. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately EDU wasn't nearly as popular as these 10 stocks and hedge funds that were betting on EDU were disappointed as the stock returned 12.6% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
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