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Were Hedge Funds Right About Ditching Ctrip.com International, Ltd. (CTRP)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Ctrip.com International, Ltd. (NASDAQ:CTRP).

Is Ctrip.com International, Ltd. (NASDAQ:CTRP) a bargain? Prominent investors are getting less bullish. The number of long hedge fund positions went down by 2 in recent months. Our calculations also showed that CTRP isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ 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.

Eashwar Krishnan - Tybourne Capital

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. We’re going to analyze the fresh hedge fund action surrounding Ctrip.com International, Ltd. (NASDAQ:CTRP).

How have hedgies been trading Ctrip.com International, Ltd. (NASDAQ:CTRP)?

Heading into the third quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the first quarter of 2019. By comparison, 31 hedge funds held shares or bullish call options in CTRP 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.

CTRP_oct2019

The largest stake in Ctrip.com International, Ltd. (NASDAQ:CTRP) was held by Fisher Asset Management, which reported holding $394.1 million worth of stock at the end of March. It was followed by Tybourne Capital Management with a $272.9 million position. Other investors bullish on the company included D E Shaw, Renaissance Technologies, and Tairen Capital.

Seeing as Ctrip.com International, Ltd. (NASDAQ:CTRP) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of funds who sold off their positions entirely by the end of the second quarter. Intriguingly, James Crichton’s Hitchwood Capital Management said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $69.9 million in stock. Glenn Russell Dubin’s fund, Highbridge Capital Management, also sold off its stock, about $36.9 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Ctrip.com International, Ltd. (NASDAQ:CTRP) but similarly valued. These stocks are Pembina Pipeline Corp (NYSE:PBA), Snap Inc. (NYSE:SNAP), IAC/InterActiveCorp (NASDAQ:IAC), and Liberty Broadband Corp (NASDAQ:LBRDA). All of these stocks’ market caps resemble CTRP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PBA 12 158396 -3
SNAP 45 1580615 14
IAC 47 1728406 -4
LBRDA 20 633003 1
Average 31 1025105 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $1025 million. That figure was $1154 million in CTRP’s case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 12 bullish hedge fund positions. Ctrip.com International, Ltd. (NASDAQ:CTRP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 CTRP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CTRP investors were disappointed as the stock returned -20.6% 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 in 2019.

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

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