Hedge Funds Are Warming Up To Bright Scholar Education Holdings Limited (BEDU)

In this article we will take a look at whether hedge funds think Bright Scholar Education Holdings Limited (NYSE:BEDU) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Bright Scholar Education Holdings Limited (NYSE:BEDU) was in 9 hedge funds’ portfolios at the end of March. BEDU shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. There were 8 hedge funds in our database with BEDU holdings at the end of the previous quarter. Our calculations also showed that BEDU 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.

Lei Zhang Hillhouse Capital

Lei Zhang of Hillhouse Capital Management

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. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the latest hedge fund action encompassing Bright Scholar Education Holdings Limited (NYSE:BEDU).

How have hedgies been trading Bright Scholar Education Holdings Limited (NYSE:BEDU)?

At the end of the first quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in BEDU a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Is BEDU A Good Stock To Buy?

More specifically, Indus Capital was the largest shareholder of Bright Scholar Education Holdings Limited (NYSE:BEDU), with a stake worth $31.8 million reported as of the end of September. Trailing Indus Capital was Hillhouse Capital Management, which amassed a stake valued at $26.8 million. Serenity Capital, Renaissance Technologies, and D E Shaw 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 Indus Capital allocated the biggest weight to Bright Scholar Education Holdings Limited (NYSE:BEDU), around 5.39% of its 13F portfolio. Serenity Capital is also relatively very bullish on the stock, earmarking 3.15 percent of its 13F equity portfolio to BEDU.

As aggregate interest increased, key money managers were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most outsized position in Bright Scholar Education Holdings Limited (NYSE:BEDU). Marshall Wace LLP had $0.2 million invested in the company at the end of the quarter.

Let’s go over hedge fund activity in other stocks similar to Bright Scholar Education Holdings Limited (NYSE:BEDU). We will take a look at Alexander & Baldwin Inc (NYSE:ALEX), Dycom Industries, Inc. (NYSE:DY), Douglas Dynamics Inc (NYSE:PLOW), and CTS Corporation (NYSE:CTS). This group of stocks’ market valuations are closest to BEDU’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALEX 13 28698 -5
DY 17 82687 -1
PLOW 9 14986 -3
CTS 9 67636 -1
Average 12 48502 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $77 million in BEDU’s case. Dycom Industries, Inc. (NYSE:DY) is the most popular stock in this table. On the other hand Douglas Dynamics Inc (NYSE:PLOW) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Bright Scholar Education Holdings Limited (NYSE:BEDU) is even less popular than PLOW. Hedge funds clearly dropped the ball on BEDU 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 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on BEDU as the stock returned 27.9% so far 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.