Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Bilibili Inc. (NASDAQ:BILI).
Bilibili Inc. (NASDAQ:BILI) investors should be aware of an increase in activity from the world's largest hedge funds lately. BILI was in 23 hedge funds' portfolios at the end of December. There were 18 hedge funds in our database with BILI positions at the end of the previous quarter. Our calculations also showed that BILI isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_337892" align="aligncenter" width="400"] Lei Zhang of Hillhouse Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now let's analyze the fresh hedge fund action regarding Bilibili Inc. (NASDAQ:BILI).
How are hedge funds trading Bilibili Inc. (NASDAQ:BILI)?
At Q4's end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in BILI a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Lei Zhang's Hillhouse Capital Management has the number one position in Bilibili Inc. (NASDAQ:BILI), worth close to $190.2 million, corresponding to 2.4% of its total 13F portfolio. Sitting at the No. 2 spot is Yiheng Capital, led by Jonathan Guo, holding a $150.9 million position; the fund has 13.2% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Run Ye, Junji Takegami and Hoyon Hwang's Tiger Pacific Capital, Panayotis Takis Sparaggis's Alkeon Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Yiheng Capital allocated the biggest weight to Bilibili Inc. (NASDAQ:BILI), around 13.25% of its 13F portfolio. Tiger Pacific Capital is also relatively very bullish on the stock, earmarking 10.87 percent of its 13F equity portfolio to BILI.
Now, key money managers were leading the bulls' herd. Old Well Partners, managed by Campbell Wilson, assembled the most valuable position in Bilibili Inc. (NASDAQ:BILI). Old Well Partners had $8.4 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also initiated a $2.1 million position during the quarter. The other funds with new positions in the stock are Gavin Saitowitz and Cisco J. del Valle's Springbok Capital, Fang Zheng's Keywise Capital Management, and Kevin Mok's Hidden Lake Asset Management.
Let's now take a look at hedge fund activity in other stocks similar to Bilibili Inc. (NASDAQ:BILI). We will take a look at Teladoc Inc (NYSE:TDOC), Texas Pacific Land Trust (NYSE:TPL), Braskem SA (NYSE:BAK), and Cousins Properties Incorporated (NYSE:CUZ). This group of stocks' market values are similar to BILI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TDOC,23,329887,3 TPL,17,1468604,5 BAK,5,54783,5 CUZ,12,150948,-7 Average,14.25,501056,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $501 million. That figure was $498 million in BILI's case. Teladoc Inc (NYSE:TDOC) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 5 bullish hedge fund positions. Bilibili Inc. (NASDAQ:BILI) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on BILI as the stock returned 22.8% during the first quarter (through March 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness. 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.