We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about iQIYI, Inc. (NASDAQ:IQ).
iQIYI, Inc. (NASDAQ:IQ) shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. IQ was in 18 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 23 hedge funds in our database with IQ holdings at the end of the previous quarter. Our calculations also showed that IQ isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
According to most investors, hedge funds are perceived as slow, old financial vehicles of the past. While there are over 8000 funds in operation today, We choose to focus on the leaders of this group, approximately 850 funds. These hedge fund managers orchestrate the lion's share of the hedge fund industry's total asset base, and by tailing their first-class stock picks, Insider Monkey has determined many investment strategies that have historically outstripped the S&P 500 index. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[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 take a glance at the latest hedge fund action surrounding iQIYI, Inc. (NASDAQ:IQ).
How have hedgies been trading iQIYI, Inc. (NASDAQ:IQ)?
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IQ over the last 18 quarters. With hedgies' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in iQIYI, Inc. (NASDAQ:IQ) was held by Hillhouse Capital Management, which reported holding $985.7 million worth of stock at the end of September. It was followed by Serenity Capital with a $47.9 million position. Other investors bullish on the company included Citadel Investment Group, Tiger Global Management LLC, and York Capital Management. In terms of the portfolio weights assigned to each position Hillhouse Capital Management allocated the biggest weight to iQIYI, Inc. (NASDAQ:IQ), around 12.28% of its 13F portfolio. Serenity Capital is also relatively very bullish on the stock, earmarking 9.22 percent of its 13F equity portfolio to IQ.
Due to the fact that iQIYI, Inc. (NASDAQ:IQ) has faced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of money managers who sold off their entire stakes in the third quarter. Intriguingly, Philippe Laffont's Coatue Management cut the largest position of all the hedgies followed by Insider Monkey, worth close to $30.9 million in stock, and Andrew Weiss's Weiss Asset Management was right behind this move, as the fund dropped about $19.8 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 5 funds in the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as iQIYI, Inc. (NASDAQ:IQ) but similarly valued. We will take a look at Liberty Media Corporation (NASDAQ:LSXMA), Live Nation Entertainment, Inc. (NYSE:LYV), Principal Financial Group Inc (NYSE:PFG), and SK Telecom Co., Ltd. (NYSE:SKM). This group of stocks' market values are similar to IQ's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LSXMA,50,1786071,9 LYV,44,1666010,0 PFG,20,89558,0 SKM,6,135263,-1 Average,30,919226,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $919 million. That figure was $1134 million in IQ's case. Liberty Media Corporation (NASDAQ:LSXMA) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 6 bullish hedge fund positions. iQIYI, Inc. (NASDAQ:IQ) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on IQ as the stock returned -16.8% during the same time period and outperformed the market by an even larger margin.
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.