We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards So-Young International Inc. (NASDAQ:SY).
So-Young International Inc. (NASDAQ:SY) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that SY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Apollo Commercial Real Est. Finance Inc (NYSE:ARI), Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), and Silicon Motion Technology Corp. (NASDAQ:SIMO) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 66 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to take a gander at the recent hedge fund action encompassing So-Young International Inc. (NASDAQ:SY).
How are hedge funds trading So-Young International Inc. (NASDAQ:SY)?
Heading into the fourth quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2020. On the other hand, there were a total of 2 hedge funds with a bullish position in SY a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of So-Young International Inc. (NASDAQ:SY), with a stake worth $6.2 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $2.6 million. Millennium Management, Prelude Capital (previously Springbok Capital), and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Prelude Capital (previously Springbok Capital) allocated the biggest weight to So-Young International Inc. (NASDAQ:SY), around 0.09% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to SY.
Judging by the fact that So-Young International Inc. (NASDAQ:SY) has witnessed falling interest from hedge fund managers, logic holds that there were a few hedgies who sold off their full holdings last quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the biggest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $0.5 million in stock, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund said goodbye to about $0.3 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as So-Young International Inc. (NASDAQ:SY) but similarly valued. We will take a look at Apollo Commercial Real Est. Finance Inc (NYSE:ARI), Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), Silicon Motion Technology Corp. (NASDAQ:SIMO), Hercules Capital Inc (NYSE:HTGC), NIC Inc. (NASDAQ:EGOV), Itau CorpBanca (NYSE:ITCB), and Colony Capital Inc (NYSE:CLNY). This group of stocks’ market values are closest to SY’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.7 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $16 million in SY’s case. Colony Capital Inc (NYSE:CLNY) is the most popular stock in this table. On the other hand Itau CorpBanca (NYSE:ITCB) is the least popular one with only 1 bullish hedge fund positions. So-Young International Inc. (NASDAQ:SY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SY is 48. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and surpassed the market again by 16 percentage points. Unfortunately SY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SY investors were disappointed as the stock returned -4.6% since the end of September (through 12/2) 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 in 2020.
Disclosure: None. This article was originally published at Insider Monkey.