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Is HUYA Inc. (HUYA) Going To Burn These Hedge Funds ?

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is HUYA Inc. (NYSE:HUYA) a buy here? Money managers are becoming less hopeful. The number of bullish hedge fund bets were trimmed by 1 in recent months. Our calculations also showed that HUYA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Howard Marks OAKTREE CAPITAL MANAGEMENT

Howard Marks of Oaktree Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the key hedge fund action regarding HUYA Inc. (NYSE:HUYA).

How are hedge funds trading HUYA Inc. (NYSE:HUYA)?

At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. On the other hand, there were a total of 17 hedge funds with a bullish position in HUYA a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies holds the most valuable position in HUYA Inc. (NYSE:HUYA). Renaissance Technologies has a $87.3 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Sylebra Capital Management, managed by Daniel Patrick Gibson, which holds a $75 million position; 3.3% of its 13F portfolio is allocated to the stock. Other members of the smart money that hold long positions encompass David Kowitz and Sheldon Kasowitz’s Indus Capital, David E. Shaw’s D E Shaw and Howard Marks’s Oaktree Capital Management. In terms of the portfolio weights assigned to each position Indus Capital allocated the biggest weight to HUYA Inc. (NYSE:HUYA), around 8.96% of its 13F portfolio. Kerrisdale Capital is also relatively very bullish on the stock, earmarking 5.08 percent of its 13F equity portfolio to HUYA.

Since HUYA Inc. (NYSE:HUYA) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of fund managers that slashed their full holdings heading into Q4. At the top of the heap, Panayotis Takis Sparaggis’s Alkeon Capital Management dumped the largest position of all the hedgies tracked by Insider Monkey, valued at about $27 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund sold off about $4.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to HUYA Inc. (NYSE:HUYA). These stocks are Clarivate Analytics Plc (NYSE:CCC), Companhia Brasileira de Distribuicao (NYSE:CBD), Integra Lifesciences Holdings Corporation (NASDAQ:IART), and GrubHub Inc (NYSE:GRUB). All of these stocks’ market caps resemble HUYA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CCC 38 686023 17
CBD 11 44794 0
IART 21 216426 0
GRUB 23 595061 -9
Average 23.25 385576 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $386 million. That figure was $362 million in HUYA’s case. Clarivate Analytics Plc (NYSE:CCC) is the most popular stock in this table. On the other hand Companhia Brasileira de Distribuicao (NYSE:CBD) is the least popular one with only 11 bullish hedge fund positions. HUYA Inc. (NYSE:HUYA) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HUYA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HUYA investors were disappointed as the stock returned -10.7% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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