Did Hedge Funds Drop The Ball On Baozun Inc (BZUN)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Baozun Inc (NASDAQ:BZUN) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Baozun Inc (NASDAQ:BZUN) was in 12 hedge funds’ portfolios at the end of March. BZUN has seen a decrease in activity from the world’s largest hedge funds of late. There were 15 hedge funds in our database with BZUN positions at the end of the previous quarter. Our calculations also showed that BZUN isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

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At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the fresh hedge fund action encompassing Baozun Inc (NASDAQ:BZUN).

Hedge fund activity in Baozun Inc (NASDAQ:BZUN)

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the fourth quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in BZUN a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Citadel Investment Group was the largest shareholder of Baozun Inc (NASDAQ:BZUN), with a stake worth $10.3 million reported as of the end of September. Trailing Citadel Investment Group was HBK Investments, which amassed a stake valued at $10 million. Citadel Investment Group, OZ Management, and Millennium 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 Oasis Management allocated the biggest weight to Baozun Inc (NASDAQ:BZUN), around 3.12% of its 13F portfolio. HBK Investments is also relatively very bullish on the stock, earmarking 0.31 percent of its 13F equity portfolio to BZUN.

Because Baozun Inc (NASDAQ:BZUN) has experienced bearish sentiment from the smart money, we can see that there were a few hedge funds that decided to sell off their entire stakes in the first quarter. Interestingly, Leung Chi Kit’s Kadensa Capital sold off the biggest stake of the 750 funds watched by Insider Monkey, valued at about $2.9 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund cut about $0.8 million worth. These moves are important to note, as total hedge fund interest dropped by 3 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Baozun Inc (NASDAQ:BZUN). These stocks are NetScout Systems, Inc. (NASDAQ:NTCT), WPX Energy Inc (NYSE:WPX), PennyMac Financial Services Inc (NYSE:PFSI), and PJT Partners Inc (NYSE:PJT). This group of stocks’ market caps match BZUN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NTCT 12 82203 -8
WPX 29 411632 -15
PFSI 24 210160 8
PJT 22 88247 2
Average 21.75 198061 -3.25

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 $198 million. That figure was $36 million in BZUN’s case. WPX Energy Inc (NYSE:WPX) is the most popular stock in this table. On the other hand NetScout Systems, Inc. (NASDAQ:NTCT) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Baozun Inc (NASDAQ:BZUN) is even less popular than NTCT. Hedge funds clearly dropped the ball on BZUN as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on BZUN as the stock returned 37.6% in the second quarter and outperformed the market by an even larger margin.

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