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Were Hedge Funds Right About Dumping Weibo Corp (WB)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Weibo Corp (NASDAQ:WB) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Weibo Corp (NASDAQ:WB) was in 11 hedge funds’ portfolios at the end of the fourth quarter of 2019. WB investors should be aware of a decrease in hedge fund sentiment of late. There were 15 hedge funds in our database with WB holdings at the end of the previous quarter. Our calculations also showed that WB 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).

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 S&P 500 ETFs by 41 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.

Kerr Neilson of Platinum Asset Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind we’re going to go over the fresh hedge fund action encompassing Weibo Corp (NASDAQ:WB).

Hedge fund activity in Weibo Corp (NASDAQ:WB)

At the end of the fourth quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WB over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Weibo Corp (NASDAQ:WB) was held by Fisher Asset Management, which reported holding $168.3 million worth of stock at the end of September. It was followed by Platinum Asset Management with a $65.8 million position. Other investors bullish on the company included Half Sky Capital, Citadel Investment Group, and Contrarius Investment Management. In terms of the portfolio weights assigned to each position Half Sky Capital allocated the biggest weight to Weibo Corp (NASDAQ:WB), around 21.37% of its 13F portfolio. Contrarius Investment Management is also relatively very bullish on the stock, earmarking 1.35 percent of its 13F equity portfolio to WB.

Due to the fact that Weibo Corp (NASDAQ:WB) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedge funds that slashed their full holdings last quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group sold off the largest position of all the hedgies monitored by Insider Monkey, totaling close to $26.2 million in stock. Yi Xin’s fund, Ariose Capital, also dumped its stock, about $16.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Weibo Corp (NASDAQ:WB) but similarly valued. We will take a look at Pinterest, Inc. (NYSE:PINS), NiSource Inc. (NYSE:NI), Trimble Inc. (NASDAQ:TRMB), and CF Industries Holdings, Inc. (NYSE:CF). This group of stocks’ market valuations resemble WB’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PINS 37 513512 4
NI 28 726734 2
TRMB 30 649207 2
CF 41 1003526 -1
Average 34 723245 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $723 million. That figure was $355 million in WB’s case. CF Industries Holdings, Inc. (NYSE:CF) is the most popular stock in this table. On the other hand NiSource Inc. (NYSE:NI) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Weibo Corp (NASDAQ:WB) is even less popular than NI. Hedge funds dodged a bullet by taking a bearish stance towards WB. 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 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately WB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); WB investors were disappointed as the stock returned -28.5% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
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.

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