Were Hedge Funds Right About Bitauto Holdings Limited (BITA)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Let’s take a closer look at what the funds we track think about Bitauto Holdings Limited (NYSE:BITA) in this article.

Bitauto Holdings Limited (NYSE:BITA) was in 15 hedge funds’ portfolios at the end of December. BITA has experienced an increase in hedge fund sentiment of late. There were 14 hedge funds in our database with BITA positions at the end of the previous quarter. Our calculations also showed that BITA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Matthew Halbower Pentwater Capital

Matthew Halbower of Pentwater Capital

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the recent hedge fund action encompassing Bitauto Holdings Limited (NYSE:BITA).

How have hedgies been trading Bitauto Holdings Limited (NYSE:BITA)?

At Q4’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in BITA a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

More specifically, Maso Capital was the largest shareholder of Bitauto Holdings Limited (NYSE:BITA), with a stake worth $47.1 million reported as of the end of September. Trailing Maso Capital was Pentwater Capital Management, which amassed a stake valued at $22.7 million. Millennium Management, Oasis Management, and QVT Financial were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Maso Capital allocated the biggest weight to Bitauto Holdings Limited (NYSE:BITA), around 15.16% of its 13F portfolio. Oasis Management is also relatively very bullish on the stock, dishing out 9.54 percent of its 13F equity portfolio to BITA.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Athanor Capital, managed by Parvinder Thiara, established the biggest position in Bitauto Holdings Limited (NYSE:BITA). Athanor Capital had $3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $1.6 million investment in the stock during the quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Bitauto Holdings Limited (NYSE:BITA) but similarly valued. We will take a look at AK Steel Holding Corporation (NYSE:AKS), John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), Heritage Financial Corporation (NASDAQ:HFWA), and Luminex Corporation (NASDAQ:LMNX). All of these stocks’ market caps resemble BITA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AKS 11 36663 -3
JBSS 17 66509 0
HFWA 6 22500 -4
LMNX 17 180184 1
Average 12.75 76464 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $128 million in BITA’s case. John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS) is the most popular stock in this table. On the other hand Heritage Financial Corporation (NASDAQ:HFWA) is the least popular one with only 6 bullish hedge fund positions. Bitauto Holdings Limited (NYSE:BITA) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately BITA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BITA were disappointed as the stock returned -21.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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