Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.
Is HUYA Inc. (NYSE:HUYA) the right pick for your portfolio? Money managers are getting more bullish. The number of long hedge fund positions rose by 1 lately. Our calculations also showed that HUYA isn't among the 30 most popular stocks among hedge funds.
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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's view the recent hedge fund action surrounding HUYA Inc. (NYSE:HUYA).
What have hedge funds been doing with HUYA Inc. (NYSE:HUYA)?
At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the first quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in HUYA a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Sylebra Capital Management held the most valuable stake in HUYA Inc. (NYSE:HUYA), which was worth $72.1 million at the end of the second quarter. On the second spot was Alkeon Capital Management which amassed $27 million worth of shares. Moreover, Kerrisdale Capital, Renaissance Technologies, and Kingdon Capital were also bullish on HUYA Inc. (NYSE:HUYA), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, specific money managers were breaking ground themselves. Renaissance Technologies established the largest position in HUYA Inc. (NYSE:HUYA). Renaissance Technologies had $23.3 million invested in the company at the end of the quarter. Mark Kingdon's Kingdon Capital also made a $16.2 million investment in the stock during the quarter. The following funds were also among the new HUYA investors: Howard Marks's Oaktree Capital Management, Anand Parekh's Alyeska Investment Group, and Michael Gelband's ExodusPoint Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as HUYA Inc. (NYSE:HUYA) but similarly valued. We will take a look at Medidata Solutions Inc (NASDAQ:MDSO), Versum Materials, Inc. (NYSE:VSM), JetBlue Airways Corporation (NASDAQ:JBLU), and National Instruments Corporation (NASDAQ:NATI). This group of stocks' market valuations resemble HUYA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MDSO,30,534002,14 VSM,36,913067,-7 JBLU,27,637275,1 NATI,22,486653,-6 Average,28.75,642749,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $643 million. That figure was $237 million in HUYA's case. Versum Materials, Inc. (NYSE:VSM) is the most popular stock in this table. On the other hand National Instruments Corporation (NASDAQ:NATI) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks HUYA Inc. (NYSE:HUYA) is even less popular than NATI. Hedge funds dodged a bullet by taking a bearish stance towards HUYA. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HUYA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HUYA investors were disappointed as the stock returned -4.3% during the third quarter 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 (view the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019. 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.