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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on September 30th, about a month before the elections. We at Insider Monkey have made an extensive database of more than 817 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Puxin Limited (NYSE:NEW) based on those filings.
Is Puxin Limited (NYSE:NEW) a good stock to buy now? NEW was in 7 hedge funds' portfolios at the end of September. The all time high for this statistics is 8. NEW investors should pay attention to a decrease in activity from the world's largest hedge funds of late. There were 8 hedge funds in our database with NEW holdings at the end of June. Our calculations also showed that NEW 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.
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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Lei Zhang of Hillhouse Capital 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. Keeping this in mind we're going to take a look at the key hedge fund action surrounding Puxin Limited (NYSE:NEW).
What does smart money think about Puxin Limited (NYSE:NEW)?
Heading into the fourth quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. By comparison, 5 hedge funds held shares or bullish call options in NEW a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Serenity Capital was the largest shareholder of Puxin Limited (NYSE:NEW), with a stake worth $6 million reported as of the end of September. Trailing Serenity Capital was Balyasny Asset Management, which amassed a stake valued at $1.3 million. Hillhouse Capital Management, Arrowstreet Capital, and Renaissance Technologies 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 Serenity Capital allocated the biggest weight to Puxin Limited (NYSE:NEW), around 1.11% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to NEW.
Because Puxin Limited (NYSE:NEW) has faced a decline in interest from hedge fund managers, it's easy to see that there was a specific group of money managers who sold off their full holdings heading into Q4. It's worth mentioning that John Overdeck and David Siegel's Two Sigma Advisors said goodbye to the largest position of all the hedgies tracked by Insider Monkey, valued at an estimated $0.1 million in stock. Minhua Zhang's fund, Weld Capital Management, also cut its stock, about $0.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to Puxin Limited (NYSE:NEW). These stocks are Forterra, Inc. (NASDAQ:FRTA), Stock Yards Bancorp, Inc. (NASDAQ:SYBT), Raven Industries, Inc. (NASDAQ:RAVN), Ingles Markets, Incorporated (NASDAQ:IMKTA), Bright Scholar Education Holdings Limited (NYSE:BEDU), The Gorman-Rupp Company (NYSE:GRC), and Magnite Inc. (NASDAQ:MGNI). This group of stocks' market caps are similar to NEW's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FRTA,27,128985,14 SYBT,9,10163,1 RAVN,16,79410,3 IMKTA,16,71020,0 BEDU,7,72807,0 GRC,10,37246,0 MGNI,25,143850,1 Average,15.7,77640,2.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.7 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $11 million in NEW's case. Forterra, Inc. (NASDAQ:FRTA) is the most popular stock in this table. On the other hand Bright Scholar Education Holdings Limited (NYSE:BEDU) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Puxin Limited (NYSE:NEW) is even less popular than BEDU. Our overall hedge fund sentiment score for NEW is 30.3. 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. Hedge funds dodged a bullet by taking a bearish stance towards NEW. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd but managed to beat the market again by 16 percentage points. Unfortunately NEW wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NEW investors were disappointed as the stock returned -17.9% since the end of the third quarter (through 12/2) 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 so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
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