We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Noah Holdings Limited (NYSE:NOAH).
Noah Holdings Limited (NYSE:NOAH) was in 19 hedge funds’ portfolios at the end of the third quarter of 2019. NOAH has experienced an increase in enthusiasm from smart money in recent months. There were 12 hedge funds in our database with NOAH positions at the end of the previous quarter. Our calculations also showed that NOAH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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’ 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 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 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.
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to view the recent hedge fund action regarding Noah Holdings Limited (NYSE:NOAH).
How have hedgies been trading Noah Holdings Limited (NYSE:NOAH)?
At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 58% from the second quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in NOAH a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Jonathan Guo’s Yiheng Capital has the most valuable position in Noah Holdings Limited (NYSE:NOAH), worth close to $89.1 million, corresponding to 10.9% of its total 13F portfolio. On Yiheng Capital’s heels is Tiger Pacific Capital, managed by Run Ye, Junji Takegami and Hoyon Hwang, which holds a $56.3 million position; the fund has 17.8% of its 13F portfolio invested in the stock. Other peers that hold long positions include Ted Kang’s Kylin Management, Lei Zhang’s Hillhouse Capital Management and Alok Agrawal’s Bloom Tree Partners. In terms of the portfolio weights assigned to each position Tiger Pacific Capital allocated the biggest weight to Noah Holdings Limited (NYSE:NOAH), around 17.85% of its 13F portfolio. Yiheng Capital is also relatively very bullish on the stock, designating 10.9 percent of its 13F equity portfolio to NOAH.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Kylin Management, managed by Ted Kang, initiated the most valuable position in Noah Holdings Limited (NYSE:NOAH). Kylin Management had $19.4 million invested in the company at the end of the quarter. Lei Zhang’s Hillhouse Capital Management also initiated a $14.1 million position during the quarter. The other funds with new positions in the stock are Alok Agrawal’s Bloom Tree Partners, Kerr Neilson’s Platinum Asset Management, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s check out hedge fund activity in other stocks similar to Noah Holdings Limited (NYSE:NOAH). These stocks are Resideo Technologies, Inc. (NYSE:REZI), NetScout Systems, Inc. (NASDAQ:NTCT), Essential Properties Realty Trust, Inc. (NYSE:EPRT), and Northwest Bancshares, Inc. (NASDAQ:NWBI). All of these stocks’ market caps resemble NOAH’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $155 million. That figure was $219 million in NOAH’s case. Resideo Technologies, Inc. (NYSE:REZI) is the most popular stock in this table. On the other hand NetScout Systems, Inc. (NASDAQ:NTCT) is the least popular one with only 12 bullish hedge fund positions. Noah Holdings Limited (NYSE:NOAH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NOAH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NOAH investors were disappointed as the stock returned -0.2% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.