The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small-cap stocks. In this article, we take a closer look at SouFun Holdings Limited (ADR) (NYSE:SFUN) from the perspective of those elite funds.
SouFun Holdings Limited (ADR) (NYSE:SFUN) has experienced a decrease in activity from the world’s largest hedge funds recently. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Home Bancshares Inc (NASDAQ:HOMB), Southwest Gas Corporation (NYSE:SWX), and Tenneco Inc (NYSE:TEN) to gather more data points.
In the 21st century investor’s toolkit there are several tools stock traders use to appraise stocks. Some of the most underrated tools are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the elite investment managers can beat the market by a superb amount (see the details here).
Now, we’re going to review the recent action regarding SouFun Holdings Limited (ADR) (NYSE:SFUN).
How have hedgies been trading SouFun Holdings Limited (ADR) (NYSE:SFUN)?
At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a 39% drop from the previous quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably (or had already accumulated large positions).
According to Insider Monkey’s hedge fund database, Daniel S. Och’s OZ Management has the largest position in SouFun Holdings Limited (ADR) (NYSE:SFUN), worth close to $121.4 million, corresponding to 0.4% of its total 13F portfolio. The second-most bullish fund manager is Kerr Neilson of Platinum Asset Management, with a $99.4 million position; 2.7% of his fund’s 13F portfolio is allocated to the company. Other members of the smart money that are bullish encompass Kenneth Tropin’s Graham Capital Management, Soros Fund Management, and David Kowitz and Sheldon Kasowitz’s Indus Capital.
Since SouFun Holdings Limited (ADR) (NYSE:SFUN) has faced falling interest from the smart money, it’s safe to say that there were a few hedgies who sold off their full holdings heading into Q4. It’s worth mentioning that Rob Citrone’s Discovery Capital Management dumped the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth close to $70 million in stock, and John Burbank’s Passport Capital was right behind this move, as the fund said goodbye to about $19.3 million worth of shares. These bearish behaviors are interesting, as total hedge fund interest fell by 13 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as SouFun Holdings Limited (ADR) (NYSE:SFUN) but similarly valued. These stocks are Home Bancshares Inc (NASDAQ:HOMB), Southwest Gas Corporation (NYSE:SWX), Tenneco Inc (NYSE:TEN), and Con-way Inc (NYSE:CNW). This group of stocks’ market values are closest to SFUN’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $252 million. That figure was $312 million in SFUN’s case. Tenneco Inc (NYSE:TEN) is the most popular stock in this table. On the other hand Southwest Gas Corporation (NYSE:SWX) is the least popular one with only 12 bullish hedge fund positions. SouFun Holdings Limited (ADR) (NYSE:SFUN) 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 confident in, not selling out of. In this regard TEN might be a better candidate to consider a long position in.