Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Huami Corporation (NYSE:HMI)? The smart money sentiment can provide an answer to this question.
Is Huami Corporation (NYSE:HMI) going to take off soon? Money managers were becoming hopeful. The number of long hedge fund bets went up by 1 in recent months. Huami Corporation (NYSE:HMI) was in 7 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 9. Our calculations also showed that HMI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 6 hedge funds in our database with HMI positions at the end of the second quarter.
Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Gavin Saitowitz of Prelude Capital
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let's take a look at the new hedge fund action encompassing Huami Corporation (NYSE:HMI).
What does smart money think about Huami Corporation (NYSE:HMI)?
At the end of September, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. By comparison, 5 hedge funds held shares or bullish call options in HMI a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Huami Corporation (NYSE:HMI) was held by Renaissance Technologies, which reported holding $4.9 million worth of stock at the end of September. It was followed by Cavalry Asset Management with a $4.8 million position. Other investors bullish on the company included Millennium Management, GLG Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Cavalry Asset Management allocated the biggest weight to Huami Corporation (NYSE:HMI), around 0.52% of its 13F portfolio. Prelude Capital (previously Springbok Capital) is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to HMI.
As industrywide interest jumped, specific money managers have jumped into Huami Corporation (NYSE:HMI) headfirst. Cavalry Asset Management, managed by John Hurley, established the biggest position in Huami Corporation (NYSE:HMI). Cavalry Asset Management had $4.8 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle's Prelude Capital (previously Springbok Capital) also made a $0.3 million investment in the stock during the quarter.
Let's now review hedge fund activity in other stocks similar to Huami Corporation (NYSE:HMI). These stocks are Sohu.com Limited (NASDAQ:SOHU), RadNet Inc. (NASDAQ:RDNT), Columbus McKinnon Corporation (NASDAQ:CMCO), ArcBest Corp (NASDAQ:ARCB), Cellectis SA (NASDAQ:CLLS), 1st Source Corporation (NASDAQ:SRCE), and RAPT Therapeutics, Inc. (NASDAQ:RAPT). All of these stocks' market caps are closest to HMI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SOHU,14,111806,0 RDNT,13,53528,-1 CMCO,17,32949,0 ARCB,17,66107,5 CLLS,8,20311,-5 SRCE,10,19677,0 RAPT,16,45437,9 Average,13.6,49974,1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.6 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $14 million in HMI's case. Columbus McKinnon Corporation (NASDAQ:CMCO) is the most popular stock in this table. On the other hand Cellectis SA (NASDAQ:CLLS) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Huami Corporation (NYSE:HMI) is even less popular than CLLS. Our overall hedge fund sentiment score for HMI is 29.3. 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. Hedge funds dodged a bullet by taking a bearish stance towards HMI. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd but managed to beat the market again by 16 percentage points. Unfortunately HMI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HMI investors were disappointed as the stock returned -3% since the end of the third quarter (through 12/2) 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 most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.