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Is Baozun Inc (BZUN) Going to Burn These Hedge Funds?

At Insider Monkey we follow around 700 of the best-performing investors and even though many of them lost money in the last couple of months (70% of hedge funds lost money in October whereas S&P 500 ETF lost about 7%), the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.

Baozun Inc (NASDAQ:BZUN) investors should pay attention to a decrease in enthusiasm from smart money lately. BZUN was in 17 hedge funds’ portfolios at the end of the third quarter of 2018. There were 20 hedge funds in our database with BZUN positions at the end of the previous quarter. Our calculations also showed that BZUN 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’ 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

MILLENNIUM MANAGEMENT

We’re going to take a look at the fresh hedge fund action encompassing Baozun Inc (NASDAQ:BZUN).

What does the smart money think about Baozun Inc (NASDAQ:BZUN)?

At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in BZUN heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

BZUN_dec2018

More specifically, Indus Capital was the largest shareholder of Baozun Inc (NASDAQ:BZUN), with a stake worth $44.6 million reported as of the end of September. Trailing Indus Capital was Kylin Management, which amassed a stake valued at $24.3 million. Citadel Investment Group, Millennium Management, and Laurion Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Because Baozun Inc (NASDAQ:BZUN) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few hedge funds that elected to cut their entire stakes heading into Q3. At the top of the heap, Run Ye, Junji Takegami and Hoyon Hwang’s Tiger Pacific Capital dumped the biggest stake of all the hedgies monitored by Insider Monkey, worth an estimated $14.4 million in stock. Jim Simons’s fund, Renaissance Technologies, also dumped its stock, about $9.2 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 3 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks similar to Baozun Inc (NASDAQ:BZUN). We will take a look at Envestnet Inc (NYSE:ENV), Banco Macro SA (NYSE:BMA), SeaWorld Entertainment Inc (NYSE:SEAS), and Diamond Offshore Drilling Inc (NYSE:DO). All of these stocks’ market caps match BZUN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ENV 13 70832 0
BMA 12 118446 -4
SEAS 22 375366 6
DO 19 103453 0
Average 16.5 167024 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $167 million. That figure was $124 million in BZUN’s case. SeaWorld Entertainment Inc (NYSE:SEAS) is the most popular stock in this table. On the other hand Banco Macro SA (NYSE:BMA) is the least popular one with only 12 bullish hedge fund positions. Baozun Inc (NASDAQ:BZUN) 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 SEAS might be a better candidate to consider a long position.

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

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