Did Hedge Funds Make The Right Call On 58.com Inc (WUBA) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thought58.com Inc (NYSE:WUBA) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

58.com Inc (NYSE:WUBA) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 21 hedge funds’ portfolios at the end of the first quarter of 2020. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as ICON Public Limited Company (NASDAQ:ICLR), Ares Management Corp (NYSE:ARES), and Bio-Techne Corporation (NASDAQ:TECH) to gather more data points. Our calculations also showed that WUBA 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Kerr Neilson of Platinum Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to check out the fresh hedge fund action regarding 58.com Inc (NYSE:WUBA).

What have hedge funds been doing with 58.com Inc (NYSE:WUBA)?

At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in WUBA over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Platinum Asset Management held the most valuable stake in 58.com Inc (NYSE:WUBA), which was worth $93.9 million at the end of the third quarter. On the second spot was GMT Capital which amassed $47 million worth of shares. Lakewood Capital Management, First Pacific Advisors LLC, and Renaissance Technologies 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 Half Sky Capital allocated the biggest weight to 58.com Inc (NYSE:WUBA), around 9.27% of its 13F portfolio. MD Sass is also relatively very bullish on the stock, setting aside 3.73 percent of its 13F equity portfolio to WUBA.

Since 58.com Inc (NYSE:WUBA) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedgies who sold off their full holdings by the end of the first quarter. At the top of the heap, Nitin Saigal and Dan Jacobs’s Kora Management said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, valued at an estimated $33.3 million in stock. Josh Resnick’s fund, Jericho Capital Asset Management, also cut its stock, about $21.9 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to 58.com Inc (NYSE:WUBA). These stocks are ICON Public Limited Company (NASDAQ:ICLR), Ares Management Corp (NYSE:ARES), Bio-Techne Corporation (NASDAQ:TECH), and Zendesk Inc (NYSE:ZEN). This group of stocks’ market valuations are similar to WUBA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ICLR 21 478396 2
ARES 16 186111 -2
TECH 26 313491 0
ZEN 55 1262714 -6
Average 29.5 560178 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $560 million. That figure was $293 million in WUBA’s case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand Ares Management Corp (NYSE:ARES) is the least popular one with only 16 bullish hedge fund positions. 58.com Inc (NYSE:WUBA) 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 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately WUBA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); WUBA investors were disappointed as the stock returned 13.3% since Q1 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.