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Hedge Funds Are Betting On China Mobile Limited (CHL)

“Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards China Mobile Limited (NYSE:CHL).

China Mobile Limited (NYSE:CHL) investors should be aware of an increase in support from the world’s most elite money managers of late. CHL was in 15 hedge funds’ portfolios at the end of the third quarter of 2018. There were 13 hedge funds in our database with CHL holdings at the end of the previous quarter. Our calculations also showed that chl isn’t among the 30 most popular stocks among hedge funds.

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 flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

Let’s view the fresh hedge fund action encompassing China Mobile Limited (NYSE:CHL).

How have hedgies been trading China Mobile Limited (NYSE:CHL)?

At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in CHL heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CHL Positions

Among these funds, Renaissance Technologies held the most valuable stake in China Mobile Limited (NYSE:CHL), which was worth $233.1 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $62.5 million worth of shares. Moreover, Ariel Investments, LMR Partners, and Two Sigma Advisors were also bullish on China Mobile Limited (NYSE:CHL), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, key hedge funds have jumped into China Mobile Limited (NYSE:CHL) headfirst. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, initiated the biggest position in China Mobile Limited (NYSE:CHL). LMR Partners had $17.5 million invested in the company at the end of the quarter. Ernest Chow and Jonathan Howe’s Sensato Capital Management also initiated a $7.5 million position during the quarter. The following funds were also among the new CHL investors: Matthew Tewksbury’s Stevens Capital Management and David Costen Haley’s HBK Investments.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as China Mobile Limited (NYSE:CHL) but similarly valued. We will take a look at Novartis AG (NYSE:NVS), The Coca-Cola Company (NYSE:KO), Oracle Corporation (NYSE:ORCL), and Merck & Co., Inc. (NYSE:MRK). This group of stocks’ market valuations are closest to CHL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NVS 29 1726900 4
KO 43 20664284 4
ORCL 49 8089171 -1
MRK 63 5215578 4
Average 46 8923983 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 46 hedge funds with bullish positions and the average amount invested in these stocks was $8.92 billion. That figure was $408 million in CHL’s case. Merck & Co., Inc. (NYSE:MRK) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks China Mobile Limited (NYSE:CHL) is even less popular than NVS. 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.

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

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