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 Sohu.com Limited (NASDAQ:SOHU).
Is SOHU a good stock to buy now? Hedge fund interest in Sohu.com Limited (NASDAQ:SOHU) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that SOHU 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 RadNet Inc. (NASDAQ:RDNT), Columbus McKinnon Corporation (NASDAQ:CMCO), and ArcBest Corp (NASDAQ:ARCB) 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.
CITADEL INVESTMENT GROUP
Ken Griffin of Citadel Investment Group
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. Now let's check out the key hedge fund action surrounding Sohu.com Limited (NASDAQ:SOHU).
Do Hedge Funds Think SOHU Is A Good Stock To Buy Now?
At Q3's end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SOHU over the last 21 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Sohu.com Limited (NASDAQ:SOHU), with a stake worth $57.8 million reported as of the end of September. Trailing Renaissance Technologies was Hillhouse Capital Management, which amassed a stake valued at $15.9 million. LMR Partners, Citadel Investment Group, and Maso 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 Maso Capital allocated the biggest weight to Sohu.com Limited (NASDAQ:SOHU), around 3.19% of its 13F portfolio. Symmetry Peak Management is also relatively very bullish on the stock, setting aside 1.48 percent of its 13F equity portfolio to SOHU.
Due to the fact that Sohu.com Limited (NASDAQ:SOHU) has faced a decline in interest from hedge fund managers, logic holds that there lies a certain "tier" of hedgies that elected to cut their full holdings heading into Q4. Interestingly, Noam Gottesman's GLG Partners sold off the largest stake of all the hedgies watched by Insider Monkey, worth about $0.6 million in stock, and Warren Lammert's Granite Point Capital was right behind this move, as the fund dropped about $0.3 million worth. These moves are important to note, 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 similar to Sohu.com Limited (NASDAQ:SOHU). We will take a look at RadNet Inc. (NASDAQ:RDNT), Columbus McKinnon Corporation (NASDAQ:CMCO), ArcBest Corp (NASDAQ:ARCB), Cellectis SA (NASDAQ:CLLS), 1st Source Corporation (NASDAQ:SRCE), RAPT Therapeutics, Inc. (NASDAQ:RAPT), and Akouos, Inc. (NASDAQ:AKUS). This group of stocks' market values match SOHU's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RDNT,13,53528,-1 CMCO,17,32949,0 ARCB,17,66107,5 CLLS,8,20311,-5 SRCE,10,19677,0 RAPT,16,45437,9 AKUS,12,178200,-8 Average,13.3,59458,0 [/table]
As you can see these stocks had an average of 13.3 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $112 million in SOHU's case. Columbus McKinnon Corporation (NASDAQ:CMCO) is the most popular stock in this table. On the other hand Cellectis SA (NASDAQ:CLLS) is the least popular one with only 8 bullish hedge fund positions. Sohu.com Limited (NASDAQ:SOHU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SOHU is 59.3. 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 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately SOHU wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SOHU were disappointed as the stock returned -11.7% since the end of September (through 12/8) 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.
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Disclosure: None. This article was originally published at Insider Monkey.
