It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Huami Corporation (NYSE:HMI).
Huami Corporation (NYSE:HMI) was in 4 hedge funds’ portfolios at the end of September. HMI investors should pay attention to a decrease in enthusiasm from smart money of late. There were 6 hedge funds in our database with HMI positions at the end of the previous quarter. Our calculations also showed that HMI 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.
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s go over the recent hedge fund action surrounding Huami Corporation (NYSE:HMI).
How are hedge funds trading Huami Corporation (NYSE:HMI)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HMI over the last 17 quarters. 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, Renaissance Technologies has the largest position in Huami Corporation (NYSE:HMI), worth close to $4.7 million, comprising less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Israel Englander of Millennium Management, with a $0.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions encompass Noam Gottesman’s GLG Partners, Paul Marshall and Ian Wace’s Marshall Wace and . In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Huami Corporation (NYSE:HMI), around 0.004% of its 13F portfolio. GLG Partners is also relatively very bullish on the stock, dishing out 0.0024 percent of its 13F equity portfolio to HMI.
Due to the fact that Huami Corporation (NYSE:HMI) has experienced a decline in interest from hedge fund managers, it’s safe to say that there exists a select few money managers that slashed their entire stakes last quarter. Interestingly, David E. Shaw’s D E Shaw cut the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at about $0.5 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund said goodbye to about $0.2 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to Huami Corporation (NYSE:HMI). We will take a look at Koppers Holdings Inc. (NYSE:KOP), Ruhnn Holding Limited (NASDAQ:RUHN), Krystal Biotech, Inc. (NASDAQ:KRYS), and Globalstar, Inc. (PINK:GSAT). This group of stocks’ market values are similar to HMI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KOP | 13 | 40987 | 1 |
| RUHN | 1 | 115 | -1 |
| KRYS | 11 | 159078 | -1 |
| GSAT | 11 | 97484 | -2 |
| Average | 9 | 74416 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $6 million in HMI’s case. Koppers Holdings Inc. (NYSE:KOP) is the most popular stock in this table. On the other hand Ruhnn Holding Limited (NASDAQ:RUHN) is the least popular one with only 1 bullish hedge fund positions. Huami Corporation (NYSE:HMI) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on HMI as the stock returned 12.7% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
