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Hedge Funds Aren’t Done Buying Bilibili Inc. (BILI)

In this article you are going to find out whether hedge funds think Bilibili Inc. (NASDAQ:BILI) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Bilibili Inc. (NASDAQ:BILI) has seen an increase in hedge fund sentiment in recent months. BILI was in 24 hedge funds’ portfolios at the end of March. There were 23 hedge funds in our database with BILI positions at the end of the previous quarter. Our calculations also showed that BILI 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

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, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. 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. Keeping this in mind we’re going to take a peek at the new hedge fund action regarding Bilibili Inc. (NASDAQ:BILI).

How are hedge funds trading Bilibili Inc. (NASDAQ:BILI)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in BILI a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Lei Zhang’s Hillhouse Capital Management has the biggest position in Bilibili Inc. (NASDAQ:BILI), worth close to $239.2 million, accounting for 3.2% of its total 13F portfolio. Coming in second is Jonathan Guo of Yiheng Capital, with a $189.8 million position; 14.9% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism contain Renaissance Technologies, Panayotis Takis Sparaggis’s Alkeon Capital Management and Fang Zheng’s Keywise Capital Management. In terms of the portfolio weights assigned to each position Yiheng Capital allocated the biggest weight to Bilibili Inc. (NASDAQ:BILI), around 14.93% of its 13F portfolio. Keywise Capital Management is also relatively very bullish on the stock, designating 9.1 percent of its 13F equity portfolio to BILI.

Now, key money managers have been driving this bullishness. Jericho Capital Asset Management, managed by Josh Resnick, established the biggest position in Bilibili Inc. (NASDAQ:BILI). Jericho Capital Asset Management had $26.9 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $13.9 million position during the quarter. The other funds with new positions in the stock are Phil Frohlich’s Prescott Group Capital Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Greg Eisner’s Engineers Gate Manager.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Bilibili Inc. (NASDAQ:BILI) but similarly valued. We will take a look at United Rentals, Inc. (NYSE:URI), Sarepta Therapeutics Inc (NASDAQ:SRPT), Brookfield Renewable Partners L.P. (NYSE:BEP), and E*TRADE Financial Corporation (NASDAQ:ETFC). All of these stocks’ market caps are closest to BILI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
URI 43 752405 -11
SRPT 33 905750 -9
BEP 3 18840 -1
ETFC 37 941990 -11
Average 29 654746 -8

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $655 million. That figure was $731 million in BILI’s case. United Rentals, Inc. (NYSE:URI) is the most popular stock in this table. On the other hand Brookfield Renewable Partners L.P. (NYSE:BEP) is the least popular one with only 3 bullish hedge fund positions. Bilibili Inc. (NASDAQ:BILI) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on BILI as the stock returned 51.5% during 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.