Hedge Funds Cashing Out Of Xunlei Ltd (XNET)

In this article you are going to find out whether hedge funds think Xunlei Ltd (NASDAQ:XNET) 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.

Is Xunlei Ltd (NASDAQ:XNET) a buy, sell, or hold? Investors who are in the know are becoming less confident. The number of bullish hedge fund bets were cut by 2 lately. Our calculations also showed that XNET 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). XNET was in 4 hedge funds’ portfolios at the end of the first quarter of 2020. There were 6 hedge funds in our database with XNET holdings at the end of the previous quarter.

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 44 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.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a glance at the key hedge fund action encompassing Xunlei Ltd (NASDAQ:XNET).

How are hedge funds trading Xunlei Ltd (NASDAQ:XNET)?

At Q1’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in XNET over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ovata Capital Management, managed by James Chen, holds the biggest position in Xunlei Ltd (NASDAQ:XNET). Ovata Capital Management has a $0.7 million position in the stock, comprising 0.5% of its 13F portfolio. Coming in second is CSat Investment Advisory, led by Claes Fornell, holding a $0.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers that hold long positions consist of Ken Griffin’s Citadel Investment Group, John Overdeck and David Siegel’s Two Sigma Advisors and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Ovata Capital Management allocated the biggest weight to Xunlei Ltd (NASDAQ:XNET), around 0.45% of its 13F portfolio. CSat Investment Advisory is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to XNET.

Because Xunlei Ltd (NASDAQ:XNET) has witnessed a decline in interest from hedge fund managers, we can see that there lies a certain “tier” of hedge funds that decided to sell off their entire stakes by the end of the third quarter. Intriguingly, D. E. Shaw’s D E Shaw cut the largest stake of all the hedgies monitored by Insider Monkey, worth an estimated $0.5 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund dumped about $0.2 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Xunlei Ltd (NASDAQ:XNET) but similarly valued. We will take a look at Metropolitan Bank Holding Corp. (NYSE:MCB), Playa Hotels & Resorts N.V. (NASDAQ:PLYA), BBX Capital Corporation (NYSE:BBX), and NextDecade Corporation (NASDAQ:NEXT). This group of stocks’ market valuations are similar to XNET’s market valuation.

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As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $1 million in XNET’s case. Playa Hotels & Resorts N.V. (NASDAQ:PLYA) is the most popular stock in this table. On the other hand NextDecade Corporation (NASDAQ:NEXT) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Xunlei Ltd (NASDAQ:XNET) is even less popular than NEXT. Hedge funds dodged a bullet by taking a bearish stance towards XNET. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately XNET wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); XNET investors were disappointed as the stock returned -2.7% during the second quarter (through the end of May) 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 so far in 2020.

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