Hedge Funds Have Never Been This Bullish On HDFC Bank Limited (HDB)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding HDFC Bank Limited (NYSE:HDB) and determine whether hedge funds had an edge regarding this stock.

HDFC Bank Limited (NYSE:HDB) was in 42 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 41. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. HDB investors should be aware of an increase in hedge fund interest in recent months. There were 38 hedge funds in our database with HDB positions at the end of the first quarter. Our calculations also showed that HDB isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

According to most shareholders, hedge funds are viewed as unimportant, old investment vehicles of yesteryear. While there are greater than 8000 funds trading at the moment, Our experts hone in on the crème de la crème of this group, around 850 funds. These money managers orchestrate most of all hedge funds’ total asset base, and by observing their finest picks, Insider Monkey has deciphered a few investment strategies that have historically outpaced the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .


Ken Fisher of Fisher Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we’re going to take a gander at the new hedge fund action surrounding HDFC Bank Limited (NYSE:HDB).

What have hedge funds been doing with HDFC Bank Limited (NYSE:HDB)?

At second quarter’s end, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in HDB over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Fisher Asset Management was the largest shareholder of HDFC Bank Limited (NYSE:HDB), with a stake worth $278.4 million reported as of the end of September. Trailing Fisher Asset Management was Two Creeks Capital Management, which amassed a stake valued at $219.5 million. Steadfast Capital Management, Impax Asset Management, and Route One Investment Company 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 Two Creeks Capital Management allocated the biggest weight to HDFC Bank Limited (NYSE:HDB), around 15.31% of its 13F portfolio. Sloane Robinson Investment Management is also relatively very bullish on the stock, earmarking 5.77 percent of its 13F equity portfolio to HDB.

Now, some big names were breaking ground themselves. Segantii Capital, managed by Simon Sadler, established the most valuable position in HDFC Bank Limited (NYSE:HDB). Segantii Capital had $23.1 million invested in the company at the end of the quarter. Craig Peskin and Peter Fleiss’s Solel Partners also made a $13.6 million investment in the stock during the quarter. The other funds with brand new HDB positions are Robert Pohly’s Samlyn Capital, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Hugh Sloane’s Sloane Robinson Investment Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as HDFC Bank Limited (NYSE:HDB) but similarly valued. These stocks are Fidelity National Information Services Inc. (NYSE:FIS), BlackRock, Inc. (NYSE:BLK), The Toronto-Dominion Bank (NYSE:TD), S&P Global Inc. (NYSE:SPGI), BP plc (NYSE:BP), Diageo plc (NYSE:DEO), and Intuit Inc. (NASDAQ:INTU). This group of stocks’ market values are closest to HDB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FIS 111 8173639 6
BLK 37 702091 -1
TD 15 155444 -4
SPGI 71 3024689 -2
BP 27 736756 -4
DEO 20 653839 3
INTU 53 1735265 -1
Average 47.7 2168818 -0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 47.7 hedge funds with bullish positions and the average amount invested in these stocks was $2169 million. That figure was $1177 million in HDB’s case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand The Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 15 bullish hedge fund positions. HDFC Bank Limited (NYSE:HDB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HDB is 53.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately HDB wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HDB investors were disappointed as the stock returned 9.1% since Q2 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 in 2020.

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