Hedge Funds Are Betting On Bitauto Hldg Ltd (BITA)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Bitauto Hldg Ltd (NYSE:BITA).

Bitauto Hldg Ltd (NYSE:BITA) has experienced an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that BITA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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.

Daniel Gold QVT Financial

Daniel Gold of QVT Financial

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the latest hedge fund action encompassing Bitauto Hldg Ltd (NYSE:BITA).

How have hedgies been trading Bitauto Hldg Ltd (NYSE:BITA)?

Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 86% from the second quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in BITA 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.

Among these funds, Maso Capital held the most valuable stake in Bitauto Hldg Ltd (NYSE:BITA), which was worth $25.1 million at the end of the third quarter. On the second spot was Pentwater Capital Management which amassed $15.9 million worth of shares. Oasis Management, QVT Financial, 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 Maso Capital allocated the biggest weight to Bitauto Hldg Ltd (NYSE:BITA), around 9.01% of its 13F portfolio. Oasis Management is also relatively very bullish on the stock, earmarking 4.26 percent of its 13F equity portfolio to BITA.

As aggregate interest increased, some big names were breaking ground themselves. Maso Capital, managed by Manoj Jain and Sohit Khurana, assembled the most valuable position in Bitauto Hldg Ltd (NYSE:BITA). Maso Capital had $25.1 million invested in the company at the end of the quarter. Matthew Halbower’s Pentwater Capital Management also made a $15.9 million investment in the stock during the quarter. The other funds with brand new BITA positions are Seth Fischer’s Oasis Management, Daniel Gold’s QVT Financial, and James Dinan’s York Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Bitauto Hldg Ltd (NYSE:BITA) but similarly valued. We will take a look at Inogen Inc (NASDAQ:INGN), Blucora Inc (NASDAQ:BCOR), Sangamo Therapeutics, Inc. (NASDAQ:SGMO), and KEMET Corporation (NYSE:KEM). This group of stocks’ market valuations match BITA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INGN 14 136246 -4
BCOR 14 99880 -2
SGMO 14 55789 -3
KEM 18 180934 0
Average 15 118212 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $73 million in BITA’s case. KEMET Corporation (NYSE:KEM) is the most popular stock in this table. On the other hand Inogen Inc (NASDAQ:INGN) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Bitauto Hldg Ltd (NYSE:BITA) is even less popular than INGN. Hedge funds dodged a bullet by taking a bearish stance towards BITA. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BITA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BITA investors were disappointed as the stock returned -0.7% during the fourth quarter (through the end of November) 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 so far in Q4.

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