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Were These Hedge Funds Wrong About Flocking Into Momo Inc (MOMO)?

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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 823 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Momo Inc (NASDAQ:MOMO) in this article.

Momo Inc (NASDAQ:MOMO) has seen an increase in activity from the world's largest hedge funds of late. Momo Inc (NASDAQ:MOMO) was in 34 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 45. Our calculations also showed that MOMO isn't among the 30 most popular stocks among hedge funds (click for Q2 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 today’s marketplace there are many methods market participants can use to grade stocks. A couple of the less utilized methods are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the top hedge fund managers can outperform the broader indices by a significant margin (see the details here).

YORK CAPITAL MANAGEMENT
YORK CAPITAL MANAGEMENT

James Dinan of York Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best high dividend stocks to buy to identify high dividend stocks with upside potential in this low interest rate environment. 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 to get excerpts of these letters in your inbox. Now let's check out the latest hedge fund action regarding Momo Inc (NASDAQ:MOMO).

What have hedge funds been doing with Momo Inc (NASDAQ:MOMO)?

At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MOMO over the last 20 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Renaissance Technologies, holds the most valuable position in Momo Inc (NASDAQ:MOMO). Renaissance Technologies has a $245.2 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is Kerr Neilson of Platinum Asset Management, with a $78.8 million position; the fund has 1.8% of its 13F portfolio invested in the stock. Other peers that hold long positions encompass Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Ted Kang's Kylin Management and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Kylin Management allocated the biggest weight to Momo Inc (NASDAQ:MOMO), around 10.55% of its 13F portfolio. Dalton Investments is also relatively very bullish on the stock, setting aside 4.97 percent of its 13F equity portfolio to MOMO.

As aggregate interest increased, key hedge funds were breaking ground themselves. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, initiated the biggest position in Momo Inc (NASDAQ:MOMO). LMR Partners had $19.8 million invested in the company at the end of the quarter. Hyder Ahmad's Broad Peak Investment Holdings also initiated a $17.9 million position during the quarter. The other funds with brand new MOMO positions are Noam Gottesman's GLG Partners, Run Ye, Junji Takegami and Hoyon Hwang's Tiger Pacific Capital, and James Dinan's York Capital Management.

Let's now review hedge fund activity in other stocks similar to Momo Inc (NASDAQ:MOMO). These stocks are Cogent Communications Holdings Inc. (NASDAQ:CCOI), Parsons Corporation (NYSE:PSN), Texas Roadhouse Inc (NASDAQ:TXRH), Harley-Davidson, Inc. (NYSE:HOG), Halozyme Therapeutics, Inc. (NASDAQ:HALO), PS Business Parks Inc (NYSE:PSB), and Emcor Group Inc (NYSE:EME). All of these stocks' market caps resemble MOMO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCOI,28,464857,1 PSN,15,81243,0 TXRH,25,233801,-2 HOG,30,392806,13 HALO,26,246712,3 PSB,20,123459,3 EME,29,191491,5 Average,24.7,247767,3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $586 million in MOMO's case. Harley-Davidson, Inc. (NYSE:HOG) is the most popular stock in this table. On the other hand Parsons Corporation (NYSE:PSN) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Momo Inc (NASDAQ:MOMO) is more popular among hedge funds. Our overall hedge fund sentiment score for MOMO is 82.7. 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. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately MOMO wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MOMO were disappointed as the stock returned -14.2% since the end of the second quarter (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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