At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Huami Corporation (NYSE:HMI).
Huami Corporation (NYSE:HMI) investors should be aware of a decrease in hedge fund interest of late. HMI was in 5 hedge funds’ portfolios at the end of March. There were 9 hedge funds in our database with HMI positions at the end of the previous quarter. Our calculations also showed that HMI isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the key hedge fund action encompassing Huami Corporation (NYSE:HMI).
What have hedge funds been doing with Huami Corporation (NYSE:HMI)?
At Q1’s end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -44% from one quarter earlier. By comparison, 4 hedge funds held shares or bullish call options in HMI a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, GLG Partners, managed by Noam Gottesman, holds the largest position in Huami Corporation (NYSE:HMI). GLG Partners has a $9.3 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake of Renaissance Technologies, with a $7.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism encompass Israel Englander’s Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position GLG Partners allocated the biggest weight to Huami Corporation (NYSE:HMI), around 0.06% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to HMI.
Because Huami Corporation (NYSE:HMI) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there were a few hedgies that slashed their entire stakes in the first quarter. It’s worth mentioning that Minhua Zhang’s Weld Capital Management cut the biggest stake of the “upper crust” of funds watched by Insider Monkey, worth about $0.3 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also cut its stock, about $0.2 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 4 funds in the first quarter.
Let’s now review hedge fund activity in other stocks similar to Huami Corporation (NYSE:HMI). We will take a look at QAD Inc. (NASDAQ:QADA), Fiverr International Ltd. (NYSE:FVRR), Compass Diversified Holdings LLC (NYSE:CODI), and Renewable Energy Group Inc (NASDAQ:REGI). This group of stocks’ market caps resemble HMI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QADA | 16 | 120856 | 1 |
| FVRR | 13 | 54896 | 2 |
| CODI | 4 | 2635 | -2 |
| REGI | 16 | 120237 | -5 |
| Average | 12.25 | 74656 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $20 million in HMI’s case. QAD Inc. (NASDAQ:QADA) is the most popular stock in this table. On the other hand Compass Diversified Holdings LLC (NYSE:CODI) is the least popular one with only 4 bullish hedge fund positions. Huami Corporation (NYSE:HMI) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately HMI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HMI investors were disappointed as the stock returned -28.4% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
