“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Yunji Inc. (NASDAQ:YJ) in order to identify whether reputable and successful top money managers continue to believe in its potential.
Yunji Inc. (NASDAQ:YJ) investors should pay attention to a decrease in hedge fund sentiment lately. YJ was in 3 hedge funds’ portfolios at the end of the third quarter of 2019. There were 4 hedge funds in our database with YJ positions at the end of the previous quarter. Our calculations also showed that YJ isn’t among the 30 most popular stocks among hedge funds.
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’ 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 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 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.
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. Let’s review the fresh hedge fund action encompassing Yunji Inc. (NASDAQ:YJ).
What does smart money think about Yunji Inc. (NASDAQ:YJ)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in YJ a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Yunji Inc. (NASDAQ:YJ) was held by Yiheng Capital, which reported holding $3.8 million worth of stock at the end of September. It was followed by Millennium Management with a $1.5 million position. The only other hedge fund that is bullish on the company was Tudor Investment Corp.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Alkeon 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 YJ as a viable investment and initiated a position in the stock.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Yunji Inc. (NASDAQ:YJ) but similarly valued. These stocks are American Finance Trust, Inc. (NASDAQ:AFIN), Plantronics, Inc. (NYSE:PLT), Heron Therapeutics Inc (NASDAQ:HRTX), and Gibraltar Industries Inc (NASDAQ:ROCK). This group of stocks’ market valuations resemble YJ’s market valuation.
|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 13 hedge funds with bullish positions and the average amount invested in these stocks was $150 million. That figure was $5 million in YJ’s case. Gibraltar Industries Inc (NASDAQ:ROCK) is the most popular stock in this table. On the other hand American Finance Trust, Inc. (NASDAQ:AFIN) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Yunji Inc. (NASDAQ:YJ) is even less popular than AFIN. Hedge funds dodged a bullet by taking a bearish stance towards YJ. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately YJ wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); YJ investors were disappointed as the stock returned -43.2% during the fourth quarter (through 11/22) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.