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Were Hedge Funds Right About Piling Into New Oriental Education (EDU)?

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was New Oriental Education & Tech Group Inc. (NYSE:EDU).

Is New Oriental Education & Tech Group Inc. (NYSE:EDU) worth your attention right now? Investors who are in the know are getting more bullish. The number of long hedge fund bets rose by 4 lately. Our calculations also showed that EDU 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.

Why do we pay any attention at all to hedge fund sentiment? 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.

EDU_oct2019

Unlike this former hedge fund manager who is convinced Dow will soar past 40000, 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. Let’s check out the key hedge fund action encompassing New Oriental Education & Tech Group Inc. (NYSE:EDU).

How have hedgies been trading New Oriental Education & Tech Group Inc. (NYSE:EDU)?

Heading into the third quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EDU over the last 16 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.

Mark Kingdon - Kingdon Capital

More specifically, Tiger Global Management LLC was the largest shareholder of New Oriental Education & Tech Group Inc. (NYSE:EDU), with a stake worth $227.3 million reported as of the end of March. Trailing Tiger Global Management LLC was Alkeon Capital Management, which amassed a stake valued at $104.1 million. Melvin Capital Management, Kylin Management, and Miura Global Management were also very fond of the stock, giving the stock large weights in their portfolios.

As aggregate interest increased, key money managers have been driving this bullishness. Bloom Tree Partners, managed by Alok Agrawal, created the largest position in New Oriental Education & Tech Group Inc. (NYSE:EDU). Bloom Tree Partners had $24.8 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also made a $22.2 million investment in the stock during the quarter. The other funds with brand new EDU positions are Rob Citrone’s Discovery Capital Management, Mark Kingdon’s Kingdon Capital, and Daryl Smith’s Kayak Investment Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as New Oriental Education & Tech Group Inc. (NYSE:EDU) but similarly valued. We will take a look at KB Financial Group, Inc. (NYSE:KB), Continental Resources, Inc. (NYSE:CLR), ZTO Express (Cayman) Inc. (NYSE:ZTO), and iQIYI, Inc. (NASDAQ:IQ). This group of stocks’ market caps are similar to EDU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KB 9 56122 -3
CLR 34 494249 3
ZTO 15 325627 -1
IQ 22 901265 0
Average 20 444316 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $444 million. That figure was $850 million in EDU’s case. Continental Resources, Inc. (NYSE:CLR) is the most popular stock in this table. On the other hand KB Financial Group, Inc. (NYSE:KB) is the least popular one with only 9 bullish hedge fund positions. New Oriental Education & Tech Group Inc. (NYSE:EDU) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on EDU as the stock returned 14.7% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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