Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards GSX Techedu Inc. (NYSE:GSX).
GSX Techedu Inc. (NYSE:GSX) shareholders have witnessed an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that GSX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Israel Englander of Millennium 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 this one. 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. Now we’re going to take a look at the new hedge fund action encompassing GSX Techedu Inc. (NYSE:GSX).
How are hedge funds trading GSX Techedu Inc. (NYSE:GSX)?
At the end of the fourth quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 233% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards GSX over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in GSX Techedu Inc. (NYSE:GSX) was held by Sylebra Capital Management, which reported holding $41.5 million worth of stock at the end of September. It was followed by Tairen Capital with a $23.1 million position. Other investors bullish on the company included Ovata Capital Management, Keywise Capital Management, and BeaconLight Capital. In terms of the portfolio weights assigned to each position Ovata Capital Management allocated the biggest weight to GSX Techedu Inc. (NYSE:GSX), around 5.19% of its 13F portfolio. Tairen Capital is also relatively very bullish on the stock, earmarking 3.55 percent of its 13F equity portfolio to GSX.
As aggregate interest increased, specific money managers have jumped into GSX Techedu Inc. (NYSE:GSX) headfirst. Ovata Capital Management, managed by James Chen, created the most valuable position in GSX Techedu Inc. (NYSE:GSX). Ovata Capital Management had $7 million invested in the company at the end of the quarter. Fang Zheng’s Keywise Capital Management also made a $4.8 million investment in the stock during the quarter. The other funds with brand new GSX positions are Ed Bosek’s BeaconLight Capital, Ken Griffin’s Citadel Investment Group, and Israel Englander’s Millennium Management.
Let’s now take a look at hedge fund activity in other stocks similar to GSX Techedu Inc. (NYSE:GSX). These stocks are Clarivate Analytics Plc (NYSE:CCC), Floor & Decor Holdings, Inc. (NYSE:FND), Cloudflare, Inc. (NYSE:NET), and Essent Group Ltd (NYSE:ESNT). This group of stocks’ market values resemble GSX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CCC | 45 | 813021 | 7 |
| FND | 27 | 547579 | 3 |
| NET | 22 | 205121 | -11 |
| ESNT | 36 | 327183 | 12 |
| Average | 32.5 | 473226 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $473 million. That figure was $86 million in GSX’s case. Clarivate Analytics Plc (NYSE:CCC) is the most popular stock in this table. On the other hand Cloudflare, Inc. (NYSE:NET) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks GSX Techedu Inc. (NYSE:GSX) is even less popular than NET. Hedge funds clearly dropped the ball on GSX as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on GSX as the stock returned 53.8% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
