iQIYI, Inc. (IQ): Hedge Fund Sentiment Unchanged

Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 30 stock picks outperformed the S&P 500 Index by 4 percentage points through the middle of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.

Hedge fund interest in iQIYI, Inc. (NASDAQ:IQ) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare IQ to other stocks including KB Financial Group, Inc. (NYSE:KB), Cheniere Energy Partners LP (NYSEAMEX:CQP), and American Airlines Group Inc (NASDAQ:AAL) to get a better sense of its popularity.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Lei Zhang Hillhouse Capital

Let’s go over the recent hedge fund action regarding iQIYI, Inc. (NASDAQ:IQ).

What have hedge funds been doing with iQIYI, Inc. (NASDAQ:IQ)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, no change from the previous quarter. The graph below displays the number of hedge funds with bullish position in IQ over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with IQ Positions

Among these funds, SRS Investment Management held the most valuable stake in iQIYI, Inc. (NASDAQ:IQ), which was worth $69.7 million at the end of the third quarter. On the second spot was Hillhouse Capital Management which amassed $53.6 million worth of shares. Moreover, Viking Global, Citadel Investment Group, and Point72 Asset Management were also bullish on iQIYI, Inc. (NASDAQ:IQ), allocating a large percentage of their portfolios to this stock.

Since iQIYI, Inc. (NASDAQ:IQ) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there was a specific group of money managers who sold off their positions entirely by the end of the third quarter. At the top of the heap, Leon Shaulov’s Maplelane Capital dumped the biggest stake of the “upper crust” of funds followed by Insider Monkey, totaling about $22 million in stock, and Run Ye, Junji Takegami and Hoyon Hwang’s Tiger Pacific Capital was right behind this move, as the fund dumped about $7.5 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to iQIYI, Inc. (NASDAQ:IQ). We will take a look at KB Financial Group, Inc. (NYSE:KB), Cheniere Energy Partners LP (NYSE:CQP), American Airlines Group Inc (NASDAQ:AAL), and Shinhan Financial Group Co., Ltd. (NYSE:SHG). This group of stocks’ market caps are similar to IQ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KB 4 27227 -3
CQP 4 14815 0
AAL 39 2800672 7
SHG 2 7305 -1
Average 12.25 712505 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $713 million. That figure was $300 million in IQ’s case. American Airlines Group Inc (NASDAQ:AAL) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 2 bullish hedge fund positions. iQIYI, Inc. (NASDAQ:IQ) 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. In this regard AAL might be a better candidate to consider a long position.

Disclosure: None. This article was originally published at Insider Monkey.