Were Hedge Funds Right About 360 Finance, Inc. (QFIN)?
Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether 360 Finance, Inc. (NASDAQ:QFIN) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
360 Finance, Inc. (NASDAQ:QFIN) has seen an increase in hedge fund interest lately. Our calculations also showed that QFIN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
[caption id="attachment_746893" align="aligncenter" width="400"]
Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the "next Amazon" in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's review the fresh hedge fund action encompassing 360 Finance, Inc. (NASDAQ:QFIN).
What have hedge funds been doing with 360 Finance, Inc. (NASDAQ:QFIN)?
At the end of the fourth quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 200% from one quarter earlier. On the other hand, there were a total of 2 hedge funds with a bullish position in QFIN a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Ovata Capital Management was the largest shareholder of 360 Finance, Inc. (NASDAQ:QFIN), with a stake worth $9.8 million reported as of the end of September. Trailing Ovata Capital Management was Marshall Wace LLP, which amassed a stake valued at $3.4 million. Renaissance Technologies, D E Shaw, and Oasis Management 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 Ovata Capital Management allocated the biggest weight to 360 Finance, Inc. (NASDAQ:QFIN), around 7.25% of its 13F portfolio. Oasis Management is also relatively very bullish on the stock, setting aside 0.57 percent of its 13F equity portfolio to QFIN.
As one would reasonably expect, key money managers have been driving this bullishness. Ovata Capital Management, managed by James Chen, established the biggest position in 360 Finance, Inc. (NASDAQ:QFIN). Ovata Capital Management had $9.8 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $3.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Renaissance Technologies, D. E. Shaw's D E Shaw, and Seth Fischer's Oasis Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as 360 Finance, Inc. (NASDAQ:QFIN) but similarly valued. We will take a look at AeroVironment, Inc. (NASDAQ:AVAV), Cision Ltd. (NYSE:CISN), Fate Therapeutics Inc (NASDAQ:FATE), and Oceaneering International (NYSE:OII). All of these stocks' market caps resemble QFIN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVAV,13,45195,2 CISN,27,211926,2 FATE,23,464811,-2 OII,24,142400,2 Average,21.75,216083,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $216 million. That figure was $18 million in QFIN's case. Cision Ltd. (NYSE:CISN) is the most popular stock in this table. On the other hand AeroVironment, Inc. (NASDAQ:AVAV) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks 360 Finance, Inc. (NASDAQ:QFIN) is even less popular than AVAV. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on QFIN, though not to the same extent, as the stock returned -7.9% during the same time period and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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