Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 13.1% in the 2.5 months of 2019 (including dividend payments). Conversely, hedge funds’ 15 preferred S&P 500 stocks generated a return of 19.7% during the same period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like China Mobile Limited (NYSE:CHL).
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 32 percentage points since May 2014 through March 12, 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.
Let’s take a look at the fresh hedge fund action surrounding China Mobile Limited (NYSE:CHL).
How are hedge funds trading China Mobile Limited (NYSE:CHL)?
At Q4’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards CHL over the last 14 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in China Mobile Limited (NYSE:CHL) was held by Renaissance Technologies, which reported holding $235.1 million worth of stock at the end of September. It was followed by LMR Partners with a $65.6 million position. Other investors bullish on the company included Ariel Investments, Arrowstreet Capital, and Two Sigma Advisors.
Judging by the fact that China Mobile Limited (NYSE:CHL) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of funds who were dropping their full holdings heading into Q3. Intriguingly, Matthew Hulsizer’s PEAK6 Capital Management dumped the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $2.2 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund cut about $0.7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks similar to China Mobile Limited (NYSE:CHL). These stocks are Cisco Systems, Inc. (NASDAQ:CSCO), The Home Depot, Inc. (NYSE:HD), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), and The Boeing Company (NYSE:BA). This group of stocks’ market caps resemble CHL’s market cap.
|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 54.25 hedge funds with bullish positions and the average amount invested in these stocks was $3815 million. That figure was $450 million in CHL’s case. The Boeing Company (NYSE:BA) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 37 bullish hedge fund positions. Compared to these stocks China Mobile Limited (NYSE:CHL) is even less popular than TSM. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on CHL as the stock returned 14.5% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.