We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 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 Xinyuan Real Estate Co., Ltd. (NYSE:XIN).
Xinyuan Real Estate Co., Ltd. (NYSE:XIN) investors should be aware of a decrease in hedge fund sentiment in recent months. Our calculations also showed that XIN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to go over the recent hedge fund action encompassing Xinyuan Real Estate Co., Ltd. (NYSE:XIN).
How are hedge funds trading Xinyuan Real Estate Co., Ltd. (NYSE:XIN)?
Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in XIN a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Xinyuan Real Estate Co., Ltd. (NYSE:XIN), with a stake worth $1.3 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $0.5 million. Millennium Management, Sensato Capital Management, and Citadel Investment Group 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 Sensato Capital Management allocated the biggest weight to Xinyuan Real Estate Co., Ltd. (NYSE:XIN), around 0.07% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, designating 0.0012 percent of its 13F equity portfolio to XIN.
Because Xinyuan Real Estate Co., Ltd. (NYSE:XIN) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there is a sect of money managers that decided to sell off their full holdings last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dropped the largest position of the 750 funds tracked by Insider Monkey, totaling an estimated $1.1 million in stock, and Paul Marshall and Ian Wace's Marshall Wace was right behind this move, as the fund dumped about $0 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Xinyuan Real Estate Co., Ltd. (NYSE:XIN). We will take a look at Molecular Templates, Inc. (NASDAQ:MTEM), Permian Basin Royalty Trust (NYSE:PBT), Immersion Corporation (NASDAQ:IMMR), and Unity Bancorp, Inc. (NASDAQ:UNTY). This group of stocks' market caps match XIN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTEM,11,46850,-1 PBT,5,7687,-1 IMMR,16,91386,2 UNTY,4,35275,0 Average,9,45300,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $2 million in XIN's case. Immersion Corporation (NASDAQ:IMMR) is the most popular stock in this table. On the other hand Unity Bancorp, Inc. (NASDAQ:UNTY) is the least popular one with only 4 bullish hedge fund positions. Xinyuan Real Estate Co., Ltd. (NYSE:XIN) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately XIN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); XIN investors were disappointed as the stock returned -4.9% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.