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Is LAIX Inc. (LAIX) Going To Burn These Hedge Funds ?

Nina Todic

We are still in an overall bull market and many stocks that smart money investors were piling into surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Hedge funds' top 3 stock picks returned 39.1% this year and beat the S&P 500 ETFs by nearly 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 LAIX Inc. (NYSE:LAIX).

LAIX Inc. (NYSE:LAIX) has seen an increase in activity from the world's largest hedge funds lately. Our calculations also showed that LAIX isn't among the 30 most popular stocks among hedge funds.

Today there are plenty of signals shareholders employ to analyze their holdings. A pair of the most innovative signals are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the best picks of the top money managers can outperform their index-focused peers by a very impressive amount (see the details here).

[caption id="attachment_27480" align="aligncenter" width="450"] Israel Englander of Millennium Management[/caption]

Izzy Englander of MILLENNIUM MANAGEMENT

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the latest hedge fund action encompassing LAIX Inc. (NYSE:LAIX).

How are hedge funds trading LAIX Inc. (NYSE:LAIX)?

At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LAIX over the last 17 quarters. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with LAIX Positions

Among these funds, Segantii Capital held the most valuable stake in LAIX Inc. (NYSE:LAIX), which was worth $3.4 million at the end of the third quarter. On the second spot was Millennium Management which amassed $0.4 million worth of shares. Renaissance Technologies was 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 Segantii Capital allocated the biggest weight to LAIX Inc. (NYSE:LAIX), around 0.47% of its portfolio. Millennium Management is also relatively very bullish on the stock, dishing out 0.0006 percent of its 13F equity portfolio to LAIX.

As aggregate interest increased, key money managers have been driving this bullishness. Segantii Capital, managed by Simon Sadler, created the most outsized position in LAIX Inc. (NYSE:LAIX). Segantii Capital had $3.4 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $0.1 million position during the quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as LAIX Inc. (NYSE:LAIX) but similarly valued. These stocks are BCB Bancorp, Inc. (NASDAQ:BCBP), THL Credit, Inc. (NASDAQ:TCRD), RTI Surgical Holdings, Inc. (NASDAQ:RTIX), and DHI Group Inc. (NYSE:DHX). This group of stocks' market valuations match LAIX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BCBP,3,6850,1 TCRD,6,25124,1 RTIX,14,24907,2 DHX,17,57742,1 Average,10,28656,1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $4 million in LAIX's case. DHI Group Inc. (NYSE:DHX) is the most popular stock in this table. On the other hand BCB Bancorp, Inc. (NASDAQ:BCBP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks LAIX Inc. (NYSE:LAIX) is even less popular than BCBP. Hedge funds dodged a bullet by taking a bearish stance towards LAIX. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately LAIX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); LAIX investors were disappointed as the stock returned -49.8% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market so far in Q4.

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

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