Were Hedge Funds Right About Flocking Into Qudian Inc. (QD) ?

During the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 7 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Qudian Inc. (NYSE:QD) and see how the stock is affected by the recent hedge fund activity.

Is Qudian Inc. (NYSE:QD) a great investment today? Money managers are taking an optimistic view. The number of bullish hedge fund bets inched up by 9 in recent months. Our calculations also showed that QD isn’t among the 30 most popular stocks among hedge funds.

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 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.

Michael Platt BlueCrest Capital

We’re going to check out the key hedge fund action encompassing Qudian Inc. (NYSE:QD).

How have hedgies been trading Qudian Inc. (NYSE:QD)?

At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 150% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in QD a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).


Among these funds, Arrowstreet Capital held the most valuable stake in Qudian Inc. (NYSE:QD), which was worth $9.6 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $1.5 million worth of shares. Moreover, Moon Capital, Citadel Investment Group, and Weld Capital Management were also bullish on Qudian Inc. (NYSE:QD), allocating a large percentage of their portfolios to this stock.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Renaissance Technologies, managed by Jim Simons, created the biggest position in Qudian Inc. (NYSE:QD). Renaissance Technologies had $1.5 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.6 million investment in the stock during the quarter. The other funds with brand new QD positions are Minhua Zhang’s Weld Capital Management, David Costen Haley’s HBK Investments, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..

Let’s now take a look at hedge fund activity in other stocks similar to Qudian Inc. (NYSE:QD). These stocks are Gentherm Inc (NASDAQ:THRM), Independent Bank Group Inc (NASDAQ:IBTX), Central Puerto S.A. (NYSE:CEPU), and United Fire Group, Inc. (NASDAQ:UFCS). This group of stocks’ market values match QD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
THRM 17 80419 4
IBTX 13 98991 2
CEPU 8 33956 -1
UFCS 11 21284 3
Average 12.25 58663 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $14 million in QD’s case. Gentherm Inc (NASDAQ:THRM) is the most popular stock in this table. On the other hand Central Puerto S.A. (NYSE:CEPU) is the least popular one with only 8 bullish hedge fund positions. Qudian Inc. (NYSE:QD) 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 QD as the stock returned 54.5% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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