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Did Hedge Funds Make The Right Call On LexinFintech Holdings Ltd. (LX) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of LexinFintech Holdings Ltd. (NASDAQ:LX) based on that data and determine whether they were really smart about the stock.

LexinFintech Holdings Ltd. (NASDAQ:LX) investors should be aware of an increase in hedge fund interest recently. Our calculations also showed that LX 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.

RENAISSANCE TECHNOLOGIES

Jim Simons Founder of Renaissance Technologies

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. Now let’s take a glance at the new hedge fund action regarding LexinFintech Holdings Ltd. (NASDAQ:LX).

How are hedge funds trading LexinFintech Holdings Ltd. (NASDAQ:LX)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 31% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in LX over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

The largest stake in LexinFintech Holdings Ltd. (NASDAQ:LX) was held by Kora Management, which reported holding $8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $7.6 million position. Other investors bullish on the company included Prince Street Capital Management, Oasis Management, and Slate Path Capital. In terms of the portfolio weights assigned to each position Prince Street Capital Management allocated the biggest weight to LexinFintech Holdings Ltd. (NASDAQ:LX), around 5.64% of its 13F portfolio. Oasis Management is also relatively very bullish on the stock, setting aside 3.74 percent of its 13F equity portfolio to LX.

As one would reasonably expect, specific money managers have been driving this bullishness. Oasis Management, managed by Seth Fischer, assembled the biggest position in LexinFintech Holdings Ltd. (NASDAQ:LX). Oasis Management had $4.4 million invested in the company at the end of the quarter. Kevin Mok’s Hidden Lake Asset Management also initiated a $0.7 million position during the quarter. The other funds with new positions in the stock are Greg Eisner’s Engineers Gate Manager, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Jinghua Yan’s TwinBeech Capital.

Let’s go over hedge fund activity in other stocks similar to LexinFintech Holdings Ltd. (NASDAQ:LX). We will take a look at Pluralsight, Inc. (NASDAQ:PS), Prospect Capital Corporation (NASDAQ:PSEC), Epizyme Inc (NASDAQ:EPZM), and Badger Meter, Inc. (NYSE:BMI). All of these stocks’ market caps are similar to LX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PS 18 77707 0
PSEC 8 16564 -7
EPZM 22 351530 4
BMI 20 125239 0
Average 17 142760 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $143 million. That figure was $40 million in LX’s case. Epizyme Inc (NASDAQ:EPZM) is the most popular stock in this table. On the other hand Prospect Capital Corporation (NASDAQ:PSEC) is the least popular one with only 8 bullish hedge fund positions. LexinFintech Holdings Ltd. (NASDAQ:LX) 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 LX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LX investors were disappointed as the stock returned -3.8% 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.