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Hedge Funds Souring On Hexindai Inc. (HX)

Is Hexindai Inc. (NASDAQ:HX) a good equity to bet on 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.

Hexindai Inc. (NASDAQ:HX) investors should pay attention to a decrease in enthusiasm from smart money lately. Our calculations also showed that HX isn’t among the 30 most popular stocks among hedge funds.

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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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. Let’s take a look at the new hedge fund action regarding Hexindai Inc. (NASDAQ:HX).

How have hedgies been trading Hexindai Inc. (NASDAQ:HX)?

At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in HX a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with HX Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the biggest position in Hexindai Inc. (NASDAQ:HX), worth close to $1.3 million, amounting to less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is John Overdeck and David Siegel of Two Sigma Advisors, with a $0.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Hexindai Inc. (NASDAQ:HX), around 0.0011% of its portfolio. Two Sigma Advisors is also relatively very bullish on the stock, earmarking 0.0004 percent of its 13F equity portfolio to HX.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified HX as a viable investment and initiated a position in the stock.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Hexindai Inc. (NASDAQ:HX) but similarly valued. These stocks are Curis, Inc. (NASDAQ:CRIS), Alpine Immune Sciences, Inc. (NASDAQ:ALPN), Neos Therapeutics Inc (NASDAQ:NEOS), and Almaden Minerals Ltd. (NYSE:AAU). This group of stocks’ market valuations are similar to HX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRIS 4 12581 1
ALPN 6 31781 0
NEOS 10 8715 0
AAU 1 1335 -1
Average 5.25 13603 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $2 million in HX’s case. Neos Therapeutics Inc (NASDAQ:NEOS) is the most popular stock in this table. On the other hand Almaden Minerals Ltd. (NYSE:AAU) is the least popular one with only 1 bullish hedge fund positions. Hexindai Inc. (NASDAQ:HX) 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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately HX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HX investors were disappointed as the stock returned -72.5% during the fourth quarter (through 11/22) 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.

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