China Mobile Ltd. (ADR) (CHL): Are Hedge Funds Right To Be Bearish?

Many investors, including Carl Icahn and Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the third quarter, many investors lost money due to unpredictable events such as the concerns over Valeant’s drug pricing policy that led to an overall drop among pharma stocks. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to China Mobile Ltd. (ADR) (NYSE:CHL) has changed recently.



China Mobile Ltd. was in 20 hedge funds’ portfolios at the end of September. CHL has seen a noticeable decrease in support from the world’s most elite money managers in recent months, as there were 27 hedge funds in our database with CHL positions at the end of the previous quarter. At the end of this article we will also compare CHL to other stocks including, Inc. (NASDAQ:AMZN), Nestle SA Reg Shs. Ser. B Spons (ADR) (OTCMKTS:NSRGY), and JPMorgan Chase & Co. (NYSE:JPM) to get a better sense of its popularity.

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In the 21st century investor’s toolkit there are several indicators investors can use to grade their holdings. Two of the most useful indicators are hedge fund and insider trading activity. Experts at hedge fund tracking site Insider Monkey have shown that, historically, those who follow the best picks of the top investment managers can outpace their index-focused peers by a significant margin (see the details here).

Keeping this in mind, let’s take a peek at the new action surrounding China Mobile Ltd. (ADR) (NYSE:CHL).

How have hedgies been trading China Mobile Ltd. (ADR) (NYSE:CHL)?

At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long in this stock, down by 26% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully.

Of the funds tracked by Insider Monkey, Canyon Capital Advisors, managed by Joshua Friedman and Mitchell Julis, holds the biggest position in China Mobile Ltd. (ADR) (NYSE:CHL). Canyon Capital Advisors has a $39.3 million position in the stock, comprising 1.1% of its 13F portfolio. On Canyon Capital Advisors’ heels is AQR Capital Management, led by Cliff Asness, holding a $39.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism comprise Rob Citrone’s Discovery Capital Management, Jim Simons’ Renaissance Technologies, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Because China Mobile Ltd. (ADR) (NYSE:CHL) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds that elected to cut their full holdings in the third quarter. It’s worth mentioning that David Gallo’s Valinor Management LLC dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at about $125.8 million in stock, while James Parsons of Junto Capital Management was right behind this move, as the fund manager cut about $14.5 million worth of shares. These moves are intriguing to say the least, as aggregate hedge fund interest fell by seven funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to China Mobile Ltd. (ADR) (NYSE:CHL). We will take a look at, Inc. (NASDAQ:AMZN), Nestle SA Reg Shs. Ser. B Spons (ADR) (OTCMKTS:NSRGY), JPMorgan Chase & Co. (NYSE:JPM), and Novartis AG (ADR) (NYSE:NVS). All of these stocks’ market caps match CHL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMZN 113 14981060 10
NSRGY 5 1202191 -1
JPM 100 7748535 0
NVS 29 1005423 -6

As you can see these stocks had an average of 61.75 hedge funds with bullish positions and the average amount invested in these stocks was $6.23 billion. In comparison, just $213 million in China Mobile shares were held by the same pool of investors, amounting to just 0.10% of its common stock., Inc. (NASDAQ:AMZN) is the most popular stock in this table. On the other hand Nestle SA Reg Shs. Ser. B Spons (ADR) (OTCMKTS:NSRGY) is the least popular one with only five bullish hedge fund positions. China Mobile Ltd. (ADR) (NYSE:CHL) is not the least popular stock in this group but hedge fund interest is still below average. This is a negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Amazon might be a better candidate to consider a long position in.