World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Sohu.com Limited (NASDAQ:SOHU) was in 10 hedge funds’ portfolios at the end of December. SOHU shareholders have witnessed a decrease in enthusiasm from smart money in recent months. There were 11 hedge funds in our database with SOHU holdings at the end of the previous quarter. Our calculations also showed that SOHU isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s analyze the latest hedge fund action surrounding Sohu.com Limited (NASDAQ:SOHU).
How have hedgies been trading Sohu.com Limited (NASDAQ:SOHU)?
At Q4’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the second quarter of 2018. On the other hand, there were a total of 13 hedge funds with a bullish position in SOHU a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Orbis Investment Management was the largest shareholder of Sohu.com Limited (NASDAQ:SOHU), with a stake worth $51.6 million reported as of the end of December. Trailing Orbis Investment Management was Renaissance Technologies, which amassed a stake valued at $30.6 million. Tairen Capital, Two Sigma Advisors, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Sohu.com Limited (NASDAQ:SOHU) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of funds who were dropping their full holdings in the third quarter. Interestingly, Lei Zhang’s Hillhouse Capital Management dumped the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $15.9 million in stock. Michael Platt and William Reeves’s fund, BlueCrest Capital Mgmt., also cut its stock, about $0.5 million worth. These moves are important to note, as total hedge fund interest dropped by 1 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Sohu.com Limited (NASDAQ:SOHU). We will take a look at Cerus Corporation (NASDAQ:CERS), Astec Industries, Inc. (NASDAQ:ASTE), EMC Insurance Group Inc. (NASDAQ:EMCI), and Unity Biotechnology, Inc. (NASDAQ:UBX). This group of stocks’ market caps are similar to SOHU’s market cap.
|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 8 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $93 million in SOHU’s case. Cerus Corporation (NASDAQ:CERS) is the most popular stock in this table. On the other hand Unity Biotechnology, Inc. (NASDAQ:UBX) is the least popular one with only 2 bullish hedge fund positions. Sohu.com Limited (NASDAQ:SOHU) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately SOHU wasn’t nearly as popular as these 15 stock and hedge funds that were betting on SOHU were disappointed as the stock returned -10.7% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.