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Is iQIYI, Inc. (IQ) Going to Burn These Hedge Funds?

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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 873 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 30th holdings, data that is available nowhere else. Should you consider iQIYI, Inc. (NASDAQ:IQ) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

iQIYI, Inc. (NASDAQ:IQ) was in 27 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 40. IQ shareholders have witnessed a decrease in hedge fund sentiment of late. There were 40 hedge funds in our database with IQ holdings at the end of March. Our calculations also showed that IQ isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Glen Kacher of Light Street Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to take a look at the latest hedge fund action surrounding iQIYI, Inc. (NASDAQ:IQ).

Do Hedge Funds Think IQ Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position 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.

The largest stake in iQIYI, Inc. (NASDAQ:IQ) was held by Hillhouse Capital Management, which reported holding $602.1 million worth of stock at the end of June. It was followed by Millennium Management with a $88.2 million position. Other investors bullish on the company included Redwood Capital Management, Islet Management, and Tiger Pacific Capital. In terms of the portfolio weights assigned to each position Long Corridor Asset Management allocated the biggest weight to iQIYI, Inc. (NASDAQ:IQ), around 27.3% of its 13F portfolio. Long Corridor Asset Management is also relatively very bullish on the stock, setting aside 19.6 percent of its 13F equity portfolio to IQ.

Since iQIYI, Inc. (NASDAQ:IQ) has witnessed falling interest from the smart money, logic holds that there is a sect of funds that decided to sell off their full holdings by the end of the second quarter. At the top of the heap, Frank Fu's CaaS Capital said goodbye to the largest stake of the 750 funds watched by Insider Monkey, worth about $44.8 million in stock. Donald Sussman's fund, Paloma Partners, also said goodbye to its stock, about $36.5 million worth. These transactions are important to note, as total hedge fund interest was cut by 13 funds by the end of the second 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. These stocks are Five9 Inc (NASDAQ:FIVN), CRISPR Therapeutics AG (NASDAQ:CRSP), Teck Resources Ltd (NYSE:TECK), Iron Mountain Incorporated (NYSE:IRM), InterContinental Hotels Group PLC (NYSE:IHG), Black Knight, Inc. (NYSE:BKI), and Ozon Holdings PLC (NASDAQ:OZON). All of these 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 FIVN,45,2150801,0 CRSP,34,1761605,7 TECK,40,1277433,10 IRM,25,81927,9 IHG,6,10475,-2 BKI,33,995228,-7 OZON,19,190660,2 Average,28.9,924018,2.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $924 million. That figure was $1097 million in IQ's case. Five9 Inc (NASDAQ:FIVN) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) 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 overall hedge fund sentiment score for IQ is 39.2. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and surpassed the market again by 4.5 percentage points. Unfortunately IQ wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); IQ investors were disappointed as the stock returned -44.7% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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Disclosure: None. This article was originally published at Insider Monkey.