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Were Hedge Funds Right About Flocking Into Bilibili Inc. (BILI) ?

Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Bilibili Inc. (NASDAQ:BILI).

Bilibili Inc. (NASDAQ:BILI) has seen an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that BILI isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

We’re going to take a look at the fresh hedge fund action encompassing Bilibili Inc. (NASDAQ:BILI).

How have hedgies been trading Bilibili Inc. (NASDAQ:BILI)?

Heading into the first quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in BILI 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.

BILI_apr2019

More specifically, Jericho Capital Asset Management was the largest shareholder of Bilibili Inc. (NASDAQ:BILI), with a stake worth $100.6 million reported as of the end of September. Trailing Jericho Capital Asset Management was D1 Capital Partners, which amassed a stake valued at $89 million. Yiheng Capital, Tiger Pacific Capital, and Honeycomb Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, key money managers have been driving this bullishness. D1 Capital Partners, managed by Daniel Sundheim, assembled the most outsized position in Bilibili Inc. (NASDAQ:BILI). D1 Capital Partners had $89 million invested in the company at the end of the quarter. Jonathan Guo’s Yiheng Capital also made a $36.6 million investment in the stock during the quarter. The other funds with brand new BILI positions are Francis Cueto’s Asturias Capital, Genevieve Kahr’s Ailanthus Capital Management, and Joseph Samuels’s Islet Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Bilibili Inc. (NASDAQ:BILI) but similarly valued. We will take a look at Syneos Health, Inc. (NASDAQ:SYNH), Embraer SA (NYSE:ERJ), PacWest Bancorp (NASDAQ:PACW), and Kinross Gold Corporation (NYSE:KGC). This group of stocks’ market valuations are closest to BILI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SYNH 24 213141 -3
ERJ 10 74442 -1
PACW 21 209624 -5
KGC 17 300562 -1
Average 18 199442 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $320 million in BILI’s case. Syneos Health, Inc. (NASDAQ:SYNH) is the most popular stock in this table. On the other hand Embraer SA (NYSE:ERJ) is the least popular one with only 10 bullish hedge fund positions. Bilibili Inc. (NASDAQ:BILI) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on BILI, though not to the same extent, as the stock returned 21.5% and outperformed the market as well.

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

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