Hedge Funds Have Never Been This Bullish On Noah Holdings Limited (NOAH)

Reymerlyn Martin

Wed, Jun 26, 2019, 7:03 PM

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by more than 6 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Noah Holdings Limited (NYSE:NOAH) from the perspective of those elite funds.

Noah Holdings Limited (NYSE:NOAH) has experienced an increase in activity from the world's largest hedge funds recently. Our calculations also showed that NOAH 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 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.

We're going to take a look at the recent hedge fund action regarding Noah Holdings Limited (NYSE:NOAH).

What have hedge funds been doing with Noah Holdings Limited (NYSE:NOAH)?

Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards NOAH over the last 15 quarters. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

The largest stake in Noah Holdings Limited (NYSE:NOAH) was held by Yiheng Capital, which reported holding $129.2 million worth of stock at the end of March. It was followed by Tiger Pacific Capital with a $74.7 million position. Other investors bullish on the company included Platinum Asset Management, Arrowstreet Capital, and Dalton Investments.

Consequently, key money managers have jumped into Noah Holdings Limited (NYSE:NOAH) headfirst. Platinum Asset Management, managed by Kerr Neilson, initiated the most valuable position in Noah Holdings Limited (NYSE:NOAH). Platinum Asset Management had $21.8 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $0.5 million position during the quarter. The other funds with new positions in the stock are David Harding's Winton Capital Management, Matthew Hulsizer's PEAK6 Capital Management, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Noah Holdings Limited (NYSE:NOAH) but similarly valued. We will take a look at Pan American Silver Corp. (NASDAQ:PAAS), Mercury General Corporation (NYSE:MCY), Murphy USA Inc. (NYSE:MUSA), and Watts Water Technologies Inc (NYSE:WTS). This group of stocks' market values resemble NOAH's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PAAS,17,212637,2 MCY,15,142808,-3 MUSA,21,187051,-3 WTS,15,331118,-2 Average,17,218404,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $218 million. That figure was $254 million in NOAH's case. Murphy USA Inc. (NYSE:MUSA) is the most popular stock in this table. On the other hand Mercury General Corporation (NYSE:MCY) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Noah Holdings Limited (NYSE:NOAH) is even less popular than MCY. Hedge funds dodged a bullet by taking a bearish stance towards NOAH. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately NOAH wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NOAH investors were disappointed as the stock returned -15.6% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.

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

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