Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of iQIYI, Inc. (NASDAQ:IQ).
Hedge fund interest in iQIYI, Inc. (NASDAQ:IQ) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare IQ to other stocks including Magna International Inc. (NYSE:MGA), Markel Corporation (NYSE:MKL), and Teleflex Incorporated (NYSE:TFX) to get a better sense of its popularity. Our calculations also showed that IQ isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000 in a year or two, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the fresh hedge fund action encompassing iQIYI, Inc. (NASDAQ:IQ).
How have hedgies been trading iQIYI, Inc. (NASDAQ:IQ)?
At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in IQ a year ago. 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 iQIYI, Inc. (NASDAQ:IQ) was held by Hillhouse Capital Management, which reported holding $743.5 million worth of stock at the end of March. It was followed by Serenity Capital with a $53.1 million position. Other investors bullish on the company included Citadel Investment Group, Tiger Global Management LLC, and Tiger Pacific Capital.
Judging by the fact that iQIYI, Inc. (NASDAQ:IQ) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there is a sect of hedgies that elected to cut their full holdings last quarter. At the top of the heap, Daniel Sundheim’s D1 Capital Partners cut the biggest investment of the 750 funds tracked by Insider Monkey, worth an estimated $49 million in stock. Ted Kang’s fund, Kylin Management, also said goodbye to its stock, about $25.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to iQIYI, Inc. (NASDAQ:IQ). These stocks are Magna International Inc. (NYSE:MGA), Markel Corporation (NYSE:MKL), Teleflex Incorporated (NYSE:TFX), and Genuine Parts Company (NYSE:GPC). This group of stocks’ market values match IQ’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 21 hedge funds with bullish positions and the average amount invested in these stocks was $689 million. That figure was $901 million in IQ’s case. Markel Corporation (NYSE:MKL) is the most popular stock in this table. On the other hand Magna International Inc. (NYSE:MGA) is the least popular one with only 14 bullish hedge fund positions. iQIYI, Inc. (NASDAQ:IQ) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately IQ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IQ were disappointed as the stock returned -21.9% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.