The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards iQIYI, Inc. (NASDAQ:IQ).
Is IQ a good stock to buy now? iQIYI, Inc. (NASDAQ:IQ) investors should pay attention to an increase in activity from the world's largest hedge funds in recent months. iQIYI, Inc. (NASDAQ:IQ) was in 18 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 40. Our calculations also showed that IQ 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Daniel Och, Founder of OZ Management
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. Now we're going to take a gander at the new hedge fund action surrounding iQIYI, Inc. (NASDAQ:IQ).
Do Hedge Funds Think IQ Is A Good Stock To Buy Now?
At third quarter's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the second quarter of 2020. By comparison, 23 hedge funds held shares or bullish call options in IQ a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Hillhouse Capital Management held the most valuable stake in iQIYI, Inc. (NASDAQ:IQ), which was worth $887.4 million at the end of the third quarter. On the second spot was LMR Partners which amassed $111.8 million worth of shares. Renaissance Technologies, Citadel Investment Group, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Hillhouse Capital Management allocated the biggest weight to iQIYI, Inc. (NASDAQ:IQ), around 6.72% of its 13F portfolio. Keywise Capital Management is also relatively very bullish on the stock, setting aside 4.86 percent of its 13F equity portfolio to IQ.
As aggregate interest increased, some big names have been driving this bullishness. York Capital Management, managed by James Dinan, assembled the largest position in iQIYI, Inc. (NASDAQ:IQ). York Capital Management had $9.6 million invested in the company at the end of the quarter. James Dinan's York Capital Management also initiated a $5 million position during the quarter. The other funds with brand new IQ positions are Daniel S. Och's OZ Management, Jinghua Yan's TwinBeech Capital, and Michael Gelband's ExodusPoint Capital.
Let's go over hedge fund activity in other stocks similar to iQIYI, Inc. (NASDAQ:IQ). These stocks are BioNTech SE (NASDAQ:BNTX), ORIX Corporation (NYSE:IX), MPLX LP (NYSE:MPLX), StoneCo Ltd. (NASDAQ:STNE), Trip.com Group Limited (NASDAQ:TCOM), Northern Trust Corporation (NASDAQ:NTRS), and Cheniere Energy Partners LP (NYSE:CQP). This group of stocks' market caps are similar to IQ's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BNTX,17,218302,2 IX,4,4093,0 MPLX,14,91155,1 STNE,38,2294511,3 TCOM,30,1525963,1 NTRS,28,272255,-7 CQP,3,8628,0 Average,19.1,630701,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $631 million. That figure was $1133 million in IQ's case. StoneCo Ltd. (NASDAQ:STNE) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 3 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 overall hedge fund sentiment score for IQ is 40.9. 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. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and surpassed the market again by 15.8 percentage points. Unfortunately IQ wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); IQ investors were disappointed as the stock returned 0.1% since the end of September (through 12/14) 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 2020.
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Disclosure: None. This article was originally published at Insider Monkey.