Hedge Funds Proven Right About Betting Heavily On Sea Limited (SE)

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Sea Limited (NYSE:SE).

Sea Limited (NYSE:SE) was in 76 hedge funds’ portfolios at the end of the fourth quarter of 2019. SE investors should pay attention to an increase in hedge fund interest of late. There were 69 hedge funds in our database with SE holdings at the end of the previous quarter. Our calculations also showed that SE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.

Chase Coleman of Tiger Global

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to take a look at the new hedge fund action encompassing Sea Limited (NYSE:SE).

What does smart money think about Sea Limited (NYSE:SE)?

At Q4’s end, a total of 76 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the third quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in SE a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Composite Capital held the most valuable stake in Sea Limited (NYSE:SE), which was worth $360.4 million at the end of the third quarter. On the second spot was Tiger Global Management LLC which amassed $336.2 million worth of shares. Lone Pine Capital, Kora Management, and Coatue 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 Composite Capital allocated the biggest weight to Sea Limited (NYSE:SE), around 68.14% of its 13F portfolio. Kora Management is also relatively very bullish on the stock, earmarking 52.25 percent of its 13F equity portfolio to SE.

With a general bullishness amongst the heavyweights, key money managers have jumped into Sea Limited (NYSE:SE) headfirst. Composite Capital, managed by David Ma, established the most valuable position in Sea Limited (NYSE:SE). Composite Capital had $360.4 million invested in the company at the end of the quarter. GregardáHeje’s Kontiki Capital also initiated a $93.7 million position during the quarter. The other funds with new positions in the stock are Andreas Halvorsen’s Viking Global, Leung Chi Kit’s Kadensa Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Sea Limited (NYSE:SE) but similarly valued. These stocks are Alexandria Real Estate Equities Inc (NYSE:ARE), DISH Network Corp. (NASDAQ:DISH), Garmin Ltd. (NASDAQ:GRMN), and Fortinet Inc (NASDAQ:FTNT). This group of stocks’ market values are similar to SE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ARE 21 297129 -4
DISH 41 1617687 3
GRMN 26 509870 -4
FTNT 42 1764894 1
Average 32.5 1047395 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $1047 million. That figure was $3912 million in SE’s case. Fortinet Inc (NASDAQ:FTNT) is the most popular stock in this table. On the other hand Alexandria Real Estate Equities Inc (NYSE:ARE) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Sea Limited (NYSE:SE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Hedge funds were also right about betting on SE as the stock returned 14.1% so far in Q1 (through March 9th) and outperformed the market by a huge margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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