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China Unicom (Hong Kong) Limited (CHU): Hedge Funds De-risking

In this article you are going to find out whether hedge funds think China Unicom (Hong Kong) Limited (NYSE:CHU) is a good investment 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.

Is China Unicom (Hong Kong) Limited (NYSE:CHU) the right pick for your portfolio? Prominent investors are turning less bullish. The number of long hedge fund positions dropped by 5 in recent months. Our calculations also showed that CHU isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). CHU was in 6 hedge funds’ portfolios at the end of March. There were 11 hedge funds in our database with CHU positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Izzy Englander of MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the recent hedge fund action surrounding China Unicom (Hong Kong) Limited (NYSE:CHU).

How have hedgies been trading China Unicom (Hong Kong) Limited (NYSE:CHU)?

At Q1’s end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -45% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in CHU a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Renaissance Technologies has the largest position in China Unicom (Hong Kong) Limited (NYSE:CHU), worth close to $34.4 million, amounting to less than 0.1%% of its total 13F portfolio. On Renaissance Technologies’s heels is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $12.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish contain John Overdeck and David Siegel’s Two Sigma Advisors, Paul Marshall and Ian Wace’s Marshall Wace LLP and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Arrowstreet Capital allocated the biggest weight to China Unicom (Hong Kong) Limited (NYSE:CHU), around 0.03% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to CHU.

Since China Unicom (Hong Kong) Limited (NYSE:CHU) has experienced falling interest from the aggregate hedge fund industry, we can see that there were a few hedge funds that slashed their entire stakes in the first quarter. Interestingly, Matthew Hulsizer’s PEAK6 Capital Management dropped the biggest investment of all the hedgies followed by Insider Monkey, worth close to $1.1 million in stock. Ben Levine, Andrew Manuel and Stefan Renold’s fund, LMR Partners, also sold off its stock, about $1 million worth. These transactions are interesting, as total hedge fund interest was cut by 5 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as China Unicom (Hong Kong) Limited (NYSE:CHU) but similarly valued. These stocks are Ameren Corporation (NYSE:AEE), Fastenal Company (NASDAQ:FAST), Interactive Brokers Group, Inc. (NASDAQ:IBKR), and Fortis Inc. (NYSE:FTS). This group of stocks’ market values resemble CHU’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AEE 21 723627 -10
FAST 34 588054 1
IBKR 22 779568 -7
FTS 15 347098 1
Average 23 609587 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $610 million. That figure was $48 million in CHU’s case. Fastenal Company (NASDAQ:FAST) is the most popular stock in this table. On the other hand Fortis Inc. (NYSE:FTS) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks China Unicom (Hong Kong) Limited (NYSE:CHU) is even less popular than FTS. Hedge funds dodged a bullet by taking a bearish stance towards CHU. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately CHU wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); CHU investors were disappointed as the stock returned 6.8% during the second quarter (through June 10th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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