Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards 51job, Inc. (NASDAQ:JOBS).
51job, Inc. (NASDAQ:JOBS) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds’ portfolios at the end of December. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Grupo Aeroportuario del Sureste (NYSE:ASR), Cemex SAB de CV (NYSE:CX), and New York Community Bancorp, Inc. (NYSE:NYCB) to gather more data points. Our calculations also showed that JOBS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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 stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the recent hedge fund action regarding 51job, Inc. (NASDAQ:JOBS).
What does smart money think about 51job, Inc. (NASDAQ:JOBS)?
At Q4’s end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards JOBS over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Sensato Capital Management, managed by Ernest Chow and Jonathan Howe, holds the number one position in 51job, Inc. (NASDAQ:JOBS). Sensato Capital Management has a $6.8 million position in the stock, comprising 4.7% of its 13F portfolio. On Sensato Capital Management’s heels is Ken Fisher of Fisher Asset Management, with a $6.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism comprise Fang Zheng’s Keywise Capital Management, Ray Dalio’s Bridgewater Associates and Brian Ashford-Russell and Tim Woolley’s Polar Capital. In terms of the portfolio weights assigned to each position Sensato Capital Management allocated the biggest weight to 51job, Inc. (NASDAQ:JOBS), around 4.72% of its 13F portfolio. Keywise Capital Management is also relatively very bullish on the stock, earmarking 0.63 percent of its 13F equity portfolio to JOBS.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Quantamental Technologies. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as 51job, Inc. (NASDAQ:JOBS) but similarly valued. We will take a look at Grupo Aeroportuario del Sureste (NYSE:ASR), Cemex SAB de CV (NYSE:CX), New York Community Bancorp, Inc. (NYSE:NYCB), and National Instruments Corporation (NASDAQ:NATI). This group of stocks’ market valuations resemble JOBS’s market valuation.
|Ticker||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 20 hedge funds with bullish positions and the average amount invested in these stocks was $165 million. That figure was $19 million in JOBS’s case. National Instruments Corporation (NASDAQ:NATI) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Sureste (NYSE:ASR) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks 51job, Inc. (NASDAQ:JOBS) is even less popular than ASR. Hedge funds dodged a bullet by taking a bearish stance towards JOBS. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately JOBS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); JOBS investors were disappointed as the stock returned -23.4% during the same time period 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 most of these stocks already outperformed the market so far in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.