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Hedge Funds Are Selling China Telecom Corporation Limited (CHA)

In this article we will check out the progression of hedge fund sentiment towards China Telecom Corporation Limited (NYSE:CHA) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

China Telecom Corporation Limited (NYSE:CHA) investors should be aware of a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that CHA 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).

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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 glance at the recent hedge fund action surrounding China Telecom Corporation Limited (NYSE:CHA).

What have hedge funds been doing with China Telecom Corporation Limited (NYSE:CHA)?

Heading into the second quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the fourth quarter of 2019. On the other hand, there were a total of 8 hedge funds with a bullish position in CHA a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of China Telecom Corporation Limited (NYSE:CHA), with a stake worth $18.3 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $4.5 million. Two Sigma Advisors, Citadel Investment Group, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to China Telecom Corporation Limited (NYSE:CHA), around 0.02% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to CHA.

Due to the fact that China Telecom Corporation Limited (NYSE:CHA) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few funds who sold off their positions entirely in the first quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest investment of the 750 funds tracked by Insider Monkey, comprising an estimated $1.3 million in stock. Ernest Chow and Jonathan Howe’s fund, Sensato Capital Management, also dumped its stock, about $0.2 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 2 funds in the first quarter.

Let’s now review hedge fund activity in other stocks similar to China Telecom Corporation Limited (NYSE:CHA). We will take a look at Lululemon Athletica inc. (NASDAQ:LULU), MSCI Inc (NYSE:MSCI), Manulife Financial Corporation (NYSE:MFC), and Marriott International Inc (NASDAQ:MAR). This group of stocks’ market values match CHA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LULU 40 788852 -7
MSCI 29 638503 -13
MFC 20 139150 1
MAR 47 1553974 10
Average 34 780120 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $780 million. That figure was $28 million in CHA’s case. Marriott International Inc (NASDAQ:MAR) is the most popular stock in this table. On the other hand Manulife Financial Corporation (NYSE:MFC) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks China Telecom Corporation Limited (NYSE:CHA) is even less popular than MFC. Hedge funds dodged a bullet by taking a bearish stance towards CHA. 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 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately CHA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); CHA investors were disappointed as the stock returned 9.4% during the second quarter (through the end of May) 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.

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