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Hedge Funds Were Dumping Trip.com Group Limited (TCOM) Before The Coronavirus

Abigail Fisher

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 (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. Keeping this in mind, let's analyze whether 0 is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

TCOM investors should be aware of a decrease in enthusiasm from smart money lately. Our calculations also showed that TCOM isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).

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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_339612" align="aligncenter" width="399"] Kerr Neilson of Platinum Asset 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. With all of this in mind let's take a look at the fresh hedge fund action surrounding 0.

Hedge fund activity in Trip.com Group Limited (NASDAQ:TCOM)

Heading into the first quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TCOM over the last 18 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

The largest stake in Trip.com Group Limited (NASDAQ:TCOM) was held by Fisher Asset Management, which reported holding $327.2 million worth of stock at the end of September. It was followed by Kontiki Capital with a $101.8 million position. Other investors bullish on the company included Renaissance Technologies, Platinum Asset Management, and Broad Peak Investment Holdings. In terms of the portfolio weights assigned to each position Kontiki Capital allocated the biggest weight to Trip.com Group Limited (NASDAQ:TCOM), around 26.46% of its 13F portfolio. Broad Peak Investment Holdings is also relatively very bullish on the stock, dishing out 8.35 percent of its 13F equity portfolio to TCOM.

Judging by the fact that Trip.com Group Limited (NASDAQ:TCOM) has faced falling interest from the smart money, it's easy to see that there is a sect of funds who sold off their entire stakes by the end of the third quarter. Interestingly, Simon Sadler's Segantii Capital sold off the largest position of all the hedgies watched by Insider Monkey, worth close to $37.3 million in stock, and Jeffrey Talpins's Element Capital Management was right behind this move, as the fund sold off about $22.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 8 funds by the end of the third quarter.

Let's also examine hedge fund activity in other stocks similar to Trip.com Group Limited (NASDAQ:TCOM). These stocks are Seattle Genetics, Inc. (NASDAQ:SGEN), Franco-Nevada Corporation (NYSE:FNV), Cadence Design Systems Inc (NASDAQ:CDNS), and D.R. Horton, Inc. (NYSE:DHI). This group of stocks' market valuations are similar to TCOM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SGEN,36,6196536,7 FNV,24,796996,1 CDNS,42,1534323,6 DHI,51,2240658,-8 Average,38.25,2692128,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.25 hedge funds with bullish positions and the average amount invested in these stocks was $2692 million. That figure was $1032 million in TCOM's case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand Franco-Nevada Corporation (NYSE:FNV) is the least popular one with only 24 bullish hedge fund positions. Trip.com Group Limited (NASDAQ:TCOM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 beat the market by 3.2 percentage points. Unfortunately TCOM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TCOM investors were disappointed as the stock returned -32.8% during the same time period 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 in Q1.

5 Most Popular Stocks Among Hedge Funds

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.

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