Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is China Online Education Group (NYSE:COE), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
China Online Education Group (NYSE:COE) has seen a decrease in support from the world’s most elite money managers in recent months. China Online Education Group (NYSE:COE) was in 4 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 6. There were 5 hedge funds in our database with COE holdings at the end of June. Our calculations also showed that COE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s view the key hedge fund action encompassing China Online Education Group (NYSE:COE).
What have hedge funds been doing with China Online Education Group (NYSE:COE)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in COE a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Daniel Patrick Gibson’s Sylebra Capital Management has the most valuable position in China Online Education Group (NYSE:COE), worth close to $10.2 million, corresponding to 0.3% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, holding a $5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions encompass David Kowitz and Sheldon Kasowitz’s Indus Capital, Israel Englander’s Millennium Management and . In terms of the portfolio weights assigned to each position Indus Capital allocated the biggest weight to China Online Education Group (NYSE:COE), around 0.7% of its 13F portfolio. Sylebra Capital Management is also relatively very bullish on the stock, dishing out 0.31 percent of its 13F equity portfolio to COE.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Portolan Capital Management. 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 none of the 750+ hedge funds tracked by Insider Monkey identified COE as a viable investment and initiated a position in the stock.
Let’s also examine hedge fund activity in other stocks similar to China Online Education Group (NYSE:COE). These stocks are CBTX, Inc. (NASDAQ:CBTX), Amryt Pharma plc (NASDAQ:AMYT), REX American Resources Corp (NYSE:REX), Laird Superfood, Inc. (NYSE:LSF), Diamond Hill Investment Group, Inc. (NASDAQ:DHIL), BeyondSpring, Inc. (NASDAQ:BYSI), and Sierra Wireless, Inc. (NASDAQ:SWIR). This group of stocks’ market values match COE’s market value.
|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 7.9 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $20 million in COE’s case. Laird Superfood, Inc. (NYSE:LSF) is the most popular stock in this table. On the other hand Amryt Pharma plc (NASDAQ:AMYT) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks China Online Education Group (NYSE:COE) is even less popular than AMYT. Our overall hedge fund sentiment score for COE is 24. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on COE 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 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on COE as the stock returned 45.1% since Q3 (through November 27th) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.