It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Bright Scholar Education Holdings Limited (NYSE:BEDU).
Bright Scholar Education Holdings Limited (NYSE:BEDU) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds' portfolios at the end of June. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Twin River Worldwide Holdings Inc. (NYSE:TRWH), Brookline Bancorp, Inc. (NASDAQ:BRKL), and OFG Bancorp (NYSE:OFG) to gather more data points. Our calculations also showed that BEDU isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' 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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. We're going to take a look at the fresh hedge fund action encompassing Bright Scholar Education Holdings Limited (NYSE:BEDU).
What does smart money think about Bright Scholar Education Holdings Limited (NYSE:BEDU)?
Heading into the third quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BEDU over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, David Kowitz and Sheldon Kasowitz's Indus Capital has the most valuable position in Bright Scholar Education Holdings Limited (NYSE:BEDU), worth close to $46 million, comprising 7.5% of its total 13F portfolio. Coming in second is Serenity Capital, led by Wang Chan, holding a $19.9 million position; the fund has 6% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions contain D. E. Shaw's D E Shaw, Israel Englander's Millennium Management and Renaissance Technologies.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Granite Point Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Trellus Management Company).
Let's go over hedge fund activity in other stocks similar to Bright Scholar Education Holdings Limited (NYSE:BEDU). We will take a look at Twin River Worldwide Holdings Inc. (NYSE:TRWH), Brookline Bancorp, Inc. (NASDAQ:BRKL), OFG Bancorp (NYSE:OFG), and Winnebago Industries, Inc. (NYSE:WGO). This group of stocks' market valuations are closest to BEDU's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRWH,14,255799,4 BRKL,8,51964,-1 OFG,18,84829,-2 WGO,13,109505,-2 Average,13.25,125524,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $72 million in BEDU's case. OFG Bancorp (NYSE:OFG) is the most popular stock in this table. On the other hand Brookline Bancorp, Inc. (NASDAQ:BRKL) is the least popular one with only 8 bullish hedge fund positions. Bright Scholar Education Holdings Limited (NYSE:BEDU) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on BEDU as the stock returned 15% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.