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Five Foreign Stocks Hedge Funds Love

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The easiest way to reduce a portfolio’s exposure to local factors, which could both be macroeconomic or industry specific, is to invest in foreign companies listed on local exchanges. In order to help retail investors with this diversification we have jotted down a list of five foreign companies that are very popular among the smart money investors in our database, based on the previous round of 13F filings.

Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests during the 1999-2012 period (see the details here).

#5 JD.Com Inc(ADR) (NASDAQ:JD)

Investors with Long Positions (as of September 30): 71

Aggregate Value of Investors’ Holdings (as of September 30): $9.10 Billion

While the total number of hedge funds, among those that we track, with shares of JD.Com Inc(ADR) (NASDAQ:JD) in their portfolios dropped by four during the third quarter the aggregate value of their holdings declined by $270 million. Nevertheless, the stock was fairly popular among the investors in our database and they have been rewarded with gains north of 30% registered by JD’s stock during the fourth quarter. However, as the market became more concerned about the growth of the Chinese economy and its impact on consumption, most Chinese stocks retracted since the beginning of the year and JD’s shares have lost some 29% year-to-date.

 JD.com has not reported its financial results for the last quarter yet, but analysts currently expect a loss of $0.12 per share on revenue of $51.95 billion, which represents a 49% growth on the year. However, the latest results of JD’s rival in the Chinese e-commerce space Alibaba Group Holding Ltd (NYSE:BABA), showed a slowdown in the gross merchandise value growth, which might be bad news for JD. Nevertheless, analysts remain optimistic on the stock’s prospects and earlier this year, Jefferies Group and MKM Partners reiterated ‘Buy’ ratings, while Nomura upgraded the stock to ‘Buy’ from ‘Neutral’ and raised the price target to $35 from $27. In the current round of 13F filings, Richard Driehaus’ Driehaus Capital reported a new position in JD.com, which contains 741,655 shares.

#4 AerCap Holdings N.V. (NYSE:AER)

Investors with Long Positions (as of September 30): 77

Aggregate Value of Investors’ Holdings (as of September 30): $2.99 Billion

The Netherlands-based $5.3 billion aircraft leasing company has seen its stock price lose some 30% since the end of September, as it has been mainly affected by a 39% drop registered since the beginning of 2016. The year-to-date decline came mainly amid the broader market correction, since there haven’t been any particular events that affected the company. The turmoil in China also played an important role in the correction of the AerCap’s stock, since the emerging markets in Asia represent important markets for the aircraft leasing companies.

However, there might be a high chance that the correction was a bit of an overreaction, since AerCap maintains a strong balance sheet and has commitments to purchase 458 new aircrafts through 2022 (as of September 30). At the same time, at 4.1 forward price-to-earnings multiple, the stock is very attractive following the correction. Among the funds we follow, at the end of 2015, Wexford Capital held 345,730 shares of AerCap, according to its latest 13F filing.

 

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