The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 18.7% through May 30th, vs. a gain of 12.1% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards 21Vianet Group Inc (NASDAQ:VNET), and what that likely means for the prospects of the company and its stock.
21Vianet Group Inc (NASDAQ:VNET) investors should be aware of an increase in hedge fund sentiment recently. Our calculations also showed that VNET isn't among the 30 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a peek at the new hedge fund action regarding 21Vianet Group Inc (NASDAQ:VNET).
What have hedge funds been doing with 21Vianet Group Inc (NASDAQ:VNET)?
At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in VNET over the last 15 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in 21Vianet Group Inc (NASDAQ:VNET) was held by Sylebra Capital Management, which reported holding $13 million worth of stock at the end of March. It was followed by Dalton Investments with a $11.3 million position. Other investors bullish on the company included Renaissance Technologies, PEAK6 Capital Management, and D E Shaw.
As one would reasonably expect, key hedge funds were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in 21Vianet Group Inc (NASDAQ:VNET). Arrowstreet Capital had $2.2 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $0.6 million investment in the stock during the quarter. The only other fund with a new position in the stock is Simon Sadler's Segantii Capital.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as 21Vianet Group Inc (NASDAQ:VNET) but similarly valued. These stocks are Forrester Research, Inc. (NASDAQ:FORR), Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), The Gorman-Rupp Company (NYSE:GRC), and PetIQ, Inc. (NASDAQ:PETQ). This group of stocks' market values are closest to VNET's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FORR,13,63228,3 DCPH,17,216366,2 GRC,7,38502,0 PETQ,13,86032,0 Average,12.5,101032,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $45 million in VNET's case. Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) is the most popular stock in this table. On the other hand The Gorman-Rupp Company (NYSE:GRC) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks 21Vianet Group Inc (NASDAQ:VNET) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately VNET wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VNET were disappointed as the stock returned -7.6% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.