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Is Jumei International Holding Ltd (JMEI) Going to Burn These Hedge Funds?

Reymerlyn Martin

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Jumei International Holding Ltd (NYSE:JMEI).

Jumei International Holding Ltd (NYSE:JMEI) investors should be aware of an increase in hedge fund interest in recent months. Our calculations also showed that JMEI isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

MILLENNIUM MANAGEMENT

In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources  like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we're going to check out the latest hedge fund action regarding Jumei International Holding Ltd (NYSE:JMEI).

How are hedge funds trading Jumei International Holding Ltd (NYSE:JMEI)?

Heading into the third quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 100% from one quarter earlier. On the other hand, there were a total of 5 hedge funds with a bullish position in JMEI a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

JMEI_nov2019

The largest stake in Jumei International Holding Ltd (NYSE:JMEI) was held by Renaissance Technologies, which reported holding $9.3 million worth of stock at the end of March. It was followed by Millennium Management with a $0.4 million position. Other investors bullish on the company included Citadel Investment Group, Arrowstreet Capital, and Two Sigma Advisors.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Millennium Management, managed by Israel Englander, established the most valuable position in Jumei International Holding Ltd (NYSE:JMEI). Millennium Management had $0.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $0.1 million investment in the stock during the quarter. The only other fund with a brand new JMEI position is Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Jumei International Holding Ltd (NYSE:JMEI) but similarly valued. We will take a look at Tecnoglass Inc. (NASDAQ:TGLS), Catasys, Inc. (NASDAQ:CATS), Exela Technologies, Inc. (NASDAQ:XELA), and Oxford Square Capital Corp. (NASDAQ:OXSQ). All of these stocks' market caps are similar to JMEI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TGLS,5,9558,-2 CATS,6,7067,0 XELA,9,63939,-1 OXSQ,5,8208,-1 Average,6.25,22193,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $10 million in JMEI's case. Exela Technologies, Inc. (NASDAQ:XELA) is the most popular stock in this table. On the other hand Tecnoglass Inc. (NASDAQ:TGLS) is the least popular one with only 5 bullish hedge fund positions. Jumei International Holding Ltd (NYSE:JMEI) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately JMEI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); JMEI investors were disappointed as the stock returned -13.8% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.

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

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