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 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 15.1% over the last 12 months (vs. 5.6% gain for SPY), with 53% of these stocks outperforming the benchmark. 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 Bright Scholar Education Holdings Limited (NYSE:BEDU).
Is Bright Scholar Education Holdings Limited (NYSE:BEDU) a superb stock to buy now? Investors who are in the know are becoming less confident. The number of long hedge fund bets were cut by 3 in recent months. Our calculations also showed that BEDU isn’t among the 30 most popular stocks among hedge funds. BEDU was in 10 hedge funds’ portfolios at the end of September. There were 13 hedge funds in our database with BEDU holdings at the end of the previous quarter.
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.
We’re going to take a gander at the new hedge fund action surrounding Bright Scholar Education Holdings Limited (NYSE:BEDU).
How have hedgies been trading Bright Scholar Education Holdings Limited (NYSE:BEDU)?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in BEDU at the beginning of this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Bright Scholar Education Holdings Limited (NYSE:BEDU) was held by Hillhouse Capital Management, which reported holding $49.4 million worth of stock at the end of September. It was followed by Indus Capital with a $39 million position. Other investors bullish on the company included Tiger Global Management LLC, Millennium Management, and Marshall Wace LLP.
Seeing as Bright Scholar Education Holdings Limited (NYSE:BEDU) has faced a decline in interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedge funds that slashed their entire stakes by the end of the third quarter. It’s worth mentioning that Daniel S. Och’s OZ Management dropped the largest position of all the hedgies followed by Insider Monkey, totaling about $2.6 million in stock. Michael Hintze’s fund, CQS Cayman LP, also cut its stock, about $0.5 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Bright Scholar Education Holdings Limited (NYSE:BEDU). We will take a look at Crocs, Inc. (NASDAQ:CROX), Neenah Paper, Inc. (NYSE:NP), Higher One Holdings, Inc (NYSE:ONE), and Patrick Industries, Inc. (NASDAQ:PATK). All of these stocks’ market caps are similar to BEDU’s market cap.
|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 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $120 million in BEDU’s case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand Higher One Holdings, Inc (NYSE:ONE) is the least popular one with only 5 bullish hedge fund positions. Bright Scholar Education Holdings Limited (NYSE:BEDU) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CROX might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.