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Xinyuan Real Estate Co., Ltd. (XIN): Are Hedge Funds Right About This Stock?

Is Xinyuan Real Estate Co., Ltd. (NYSE:XIN) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Hedge fund interest in Xinyuan Real Estate Co., Ltd. (NYSE:XIN) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Pure Cycle Corporation (NASDAQ:PCYO), GWG Holdings, Inc (NASDAQ:GWGH), and Xenon Pharmaceuticals Inc (NASDAQ:XENE) to gather more data points. Our calculations also showed that XIN 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.

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 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 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources  like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we’re going to go over the latest hedge fund action surrounding Xinyuan Real Estate Co., Ltd. (NYSE:XIN).

What have hedge funds been doing with Xinyuan Real Estate Co., Ltd. (NYSE:XIN)?

At the end of the second quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 4 hedge funds held shares or bullish call options in XIN a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with XIN Positions

The largest stake in Xinyuan Real Estate Co., Ltd. (NYSE:XIN) was held by Renaissance Technologies, which reported holding $1.3 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $1.1 million position. Other investors bullish on the company included Two Sigma Advisors, Millennium Management, and Sensato Capital Management.

Because Xinyuan Real Estate Co., Ltd. (NYSE:XIN) has experienced falling interest from the aggregate hedge fund industry, we can see that there exists a select few fund managers who were dropping their positions entirely last quarter. At the top of the heap, Matthew Hulsizer’s PEAK6 Capital Management sold off the biggest stake of the 750 funds monitored by Insider Monkey, comprising close to $0.2 million in call options. Ken Griffin’s fund, Citadel Investment Group, also cut its call options, about $0.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to Xinyuan Real Estate Co., Ltd. (NYSE:XIN). We will take a look at Pure Cycle Corporation (NASDAQ:PCYO), GWG Holdings, Inc (NASDAQ:GWGH), Xenon Pharmaceuticals Inc (NASDAQ:XENE), and Parke Bancorp, Inc. (NASDAQ:PKBK). This group of stocks’ market values match XIN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PCYO 7 88398 1
GWGH 1 74 1
XENE 17 112726 -2
PKBK 2 13667 -1
Average 6.75 53716 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $4 million in XIN’s case. Xenon Pharmaceuticals Inc (NASDAQ:XENE) is the most popular stock in this table. On the other hand GWG Holdings, Inc (NASDAQ:GWGH) is the least popular one with only 1 bullish hedge fund positions. Xinyuan Real Estate Co., Ltd. (NYSE:XIN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately XIN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on XIN were disappointed as the stock returned -0.6% during the third quarter 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 many of these stocks already outperformed the market so far this year.

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

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