Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of 360 DigiTech, Inc. (NASDAQ:QFIN) based on that data.
360 DigiTech, Inc. (NASDAQ:QFIN) was in 15 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 12. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. QFIN investors should be aware of an increase in enthusiasm from smart money of late. There were 12 hedge funds in our database with QFIN holdings at the end of June. Our calculations also showed that QFIN 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.
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 S&P 500 ETFs by more than 66 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 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 stocks that are in our short portfolio.
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 15 best blue chip stocks 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a gander at the key hedge fund action encompassing 360 DigiTech, Inc. (NASDAQ:QFIN).
Do Hedge Funds Think QFIN Is A Good Stock To Buy Now?
At the end of September, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in QFIN a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Fang Zheng’s Keywise Capital Management has the largest position in 360 DigiTech, Inc. (NASDAQ:QFIN), worth close to $17.8 million, comprising 4.4% of its total 13F portfolio. Coming in second is Ovata Capital Management, led by James Chen, holding a $11.9 million position; the fund has 4.3% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism comprise Leung Chi Kit’s Kadensa Capital, Kevin Mok’s Hidden Lake Asset Management and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Keywise Capital Management allocated the biggest weight to 360 DigiTech, Inc. (NASDAQ:QFIN), around 4.41% of its 13F portfolio. Ovata Capital Management is also relatively very bullish on the stock, designating 4.25 percent of its 13F equity portfolio to QFIN.
Consequently, specific money managers were leading the bulls’ herd. Kadensa Capital, managed by Leung Chi Kit, assembled the largest position in 360 DigiTech, Inc. (NASDAQ:QFIN). Kadensa Capital had $5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $2.3 million investment in the stock during the quarter. The following funds were also among the new QFIN investors: Lee Ainslie’s Maverick Capital, Steve Cohen’s Point72 Asset Management, and Israel Englander’s Millennium Management.
Let’s now review hedge fund activity in other stocks similar to 360 DigiTech, Inc. (NASDAQ:QFIN). These stocks are Retail Opportunity Investments Corp (NASDAQ:ROIC), Talend S.A. (NASDAQ:TLND), Astec Industries, Inc. (NASDAQ:ASTE), Zuora, Inc. (NYSE:ZUO), Phreesia, Inc. (NYSE:PHR), Model N Inc (NYSE:MODN), and TTM Technologies, Inc. (NASDAQ:TTMI). All of these stocks’ market caps resemble QFIN’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 21.3 hedge funds with bullish positions and the average amount invested in these stocks was $181 million. That figure was $50 million in QFIN’s case. Talend S.A. (NASDAQ:TLND) is the most popular stock in this table. On the other hand Astec Industries, Inc. (NASDAQ:ASTE) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks 360 DigiTech, Inc. (NASDAQ:QFIN) is even less popular than ASTE. Our overall hedge fund sentiment score for QFIN is 38. 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 dodged a bullet by taking a bearish stance towards QFIN. Our calculations showed that the top 20 most popular hedge fund stocks 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 December 14th but managed to beat the market again by 15.8 percentage points. Unfortunately QFIN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); QFIN investors were disappointed as the stock returned -5.4% since the end of the third quarter (through 12/14) 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 most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.