We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was BEST Inc. (NYSE:BEST).
BEST Inc. (NYSE:BEST) investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that BEST 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.
David E. Shaw of D.E. Shaw
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. With all of this in mind we’re going to review the new hedge fund action encompassing BEST Inc. (NYSE:BEST).
Hedge fund activity in BEST Inc. (NYSE:BEST)
At the end of the fourth quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the third quarter of 2019. On the other hand, there were a total of 9 hedge funds with a bullish position in BEST a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in BEST Inc. (NYSE:BEST), which was worth $12.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $5.8 million worth of shares. D E Shaw, Citadel Investment Group, and Paloma Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Symmetry Peak Management allocated the biggest weight to BEST Inc. (NYSE:BEST), around 0.04% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to BEST.
Seeing as BEST Inc. (NYSE:BEST) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of funds that elected to cut their positions entirely heading into Q4. It’s worth mentioning that Michael Gelband’s ExodusPoint Capital dropped the largest stake of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $13.7 million in stock. Run Ye, Junji Takegami and Hoyon Hwang’s fund, Tiger Pacific Capital, also cut its stock, about $10.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 4 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks similar to BEST Inc. (NYSE:BEST). We will take a look at Flagstar Bancorp Inc (NYSE:FBC), Ladder Capital Corp (NYSE:LADR), WillScot Corporation (NASDAQ:WSC), and Asbury Automotive Group, Inc. (NYSE:ABG). All of these stocks’ market caps are similar to BEST’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FBC | 20 | 154140 | 5 |
| LADR | 11 | 61347 | -2 |
| WSC | 28 | 336936 | 4 |
| ABG | 24 | 362588 | 2 |
| Average | 20.75 | 228753 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $229 million. That figure was $24 million in BEST’s case. WillScot Corporation (NASDAQ:WSC) is the most popular stock in this table. On the other hand Ladder Capital Corp (NYSE:LADR) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks BEST Inc. (NYSE:BEST) is even less popular than LADR. Hedge funds clearly dropped the ball on BEST as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds 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 still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on BEST as the stock returned -5.8% during the same time period and outperformed the market by an even larger margin.
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.
