The equity market returns were very disappointing in the third quarter, “thanks” to the slowdown of China’s economy and the weaker-than-expected U.S. economic data. It was not entirely clear whether the broader market sell-off made U.S. equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25, 2015 through October 30, 2015. This clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards Chunghwa Telecom Co., Ltd (ADR) (NYSE:CHT) and see how it was affected.
Is Chunghwa Telecom Co., Ltd (ADR) (NYSE:CHT) a bargain? Investors who are in the know are buying. The number of long hedge fund bets moved up by 4 recently. 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 The Allstate Corporation (NYSE:ALL), AvalonBay Communities Inc (NYSE:AVB), and SYSCO Corporation (NYSE:SYY) to gather more data points.
If you’d ask most traders, hedge funds are assumed to be unimportant, old investment vehicles of yesteryear. While there are greater than 8000 funds in operation at the moment, Our researchers hone in on the aristocrats of this club, about 700 funds. Most estimates calculate that this group of people administer most of the hedge fund industry’s total capital, and by shadowing their best equity investments, Insider Monkey has come up with a few investment strategies that have historically exceeded Mr. Market. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points a year for a decade in their back tests.
Now, let’s view the key action surrounding Chunghwa Telecom Co., Ltd (ADR) (NYSE:CHT).
How are hedge funds trading Chunghwa Telecom Co., Ltd (ADR) (NYSE:CHT)?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 80% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the biggest position in Chunghwa Telecom Co., Ltd (ADR) (NYSE:CHT). Renaissance Technologies has a $52.5 million position in the stock, comprising 0.1% of its 13F portfolio. On Renaissance Technologies’s heels is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $14.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers that are bullish comprise D E Shaw, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group.
As industrywide interest jumped, some big names were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most outsized position in Chunghwa Telecom Co., Ltd (ADR) (NYSE:CHT). Arrowstreet Capital had $14.3 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $4.1 million position during the quarter. The other funds with brand new CHT positions are John Overdeck and David Siegel’s Two Sigma Advisors and Matthew Tewksbury’s Stevens Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Chunghwa Telecom Co., Ltd (ADR) (NYSE:CHT). These stocks are The Allstate Corporation (NYSE:ALL), AvalonBay Communities Inc (NYSE:AVB), SYSCO Corporation (NYSE:SYY), and Health Care REIT, Inc. (NYSE:HCN). All of these stocks’ market caps are similar to CHT’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $1550 million. That figure was $82 million in CHT’s case. The Allstate Corporation (NYSE:ALL) is the most popular stock in this table. On the other hand AvalonBay Communities Inc (NYSE:AVB) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Chunghwa Telecom Co., Ltd (ADR) (NYSE:CHT) is even less popular than AVB. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.