Hedge Funds Keep Buying GSX Techedu Inc. (GSX)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtGSX Techedu Inc. (NYSE:GSX) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is GSX Techedu Inc. (NYSE:GSX) a buy here? Investors who are in the know were turning bullish. The number of bullish hedge fund positions moved up by 3 in recent months. Our calculations also showed that GSX 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). GSX was in 13 hedge funds’ portfolios at the end of the first quarter of 2020. There were 10 hedge funds in our database with GSX positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

At the moment there are dozens of formulas market participants put to use to assess their stock investments. A duo of the best formulas are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the elite hedge fund managers can beat their index-focused peers by a superb amount (see the details here).

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 18 cities with the best air quality to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the fresh hedge fund action encompassing GSX Techedu Inc. (NYSE:GSX).

How have hedgies been trading GSX Techedu Inc. (NYSE:GSX)?

At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in GSX a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Is GSX A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Daniel Patrick Gibson’s Sylebra Capital Management has the biggest position in GSX Techedu Inc. (NYSE:GSX), worth close to $102.5 million, amounting to 4.2% of its total 13F portfolio. Sitting at the No. 2 spot is Driehaus Capital, managed by Richard Driehaus, which holds a $40.5 million position; the fund has 1.4% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism contain Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors,  Renaissance Technologies and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Sylebra Capital Management allocated the biggest weight to GSX Techedu Inc. (NYSE:GSX), around 4.2% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, designating 1.35 percent of its 13F equity portfolio to GSX.

Now, key hedge funds were leading the bulls’ herd. Driehaus Capital, managed by Richard Driehaus, created the most valuable position in GSX Techedu Inc. (NYSE:GSX). Driehaus Capital had $40.5 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also initiated a $19.3 million position during the quarter. The other funds with brand new GSX positions are Renaissance Technologies, Brandon Haley’s Holocene Advisors, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as GSX Techedu Inc. (NYSE:GSX) but similarly valued. We will take a look at KeyCorp (NYSE:KEY), HEICO Corporation (NYSE:HEI), TELUS Corporation (NYSE:TU), and Ulta Beauty, Inc. (NASDAQ:ULTA). This group of stocks’ market caps resemble GSX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KEY 43 348822 7
HEI 39 602163 -18
TU 15 197962 2
ULTA 46 925549 5
Average 35.75 518624 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $519 million. That figure was $204 million in GSX’s case. Ulta Beauty, Inc. (NASDAQ:ULTA) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks GSX Techedu Inc. (NYSE:GSX) is even less popular than TU. 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 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on GSX as the stock returned 36.4% 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.