How Did Sea Limited (SE) Compare Against Top Hedge Fund Stocks in 2019?

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Sea Limited (NYSE:SE) and compare its performance against hedge funds’ favorite stocks.

Is Sea Limited (NYSE:SE) the right pick for your portfolio? The best stock pickers are becoming more confident. The number of bullish hedge fund bets moved up by 4 in recent months. Our calculations also showed that SE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). SE was in 64 hedge funds’ portfolios at the end of the third quarter of 2019. There were 60 hedge funds in our database with SE holdings at the end of the previous quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lei Zhang Hillhouse Capital

Lei Zhang of Hillhouse Capital Management

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to view the new hedge fund action regarding Sea Limited (NYSE:SE).

What have hedge funds been doing with Sea Limited (NYSE:SE)?

Heading into the fourth quarter of 2019, a total of 64 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in SE a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Sea Limited (NYSE:SE) was held by Tiger Global Management, which reported holding $420.9 million worth of stock at the end of September. It was followed by Hillhouse Capital Management with a $370.1 million position. Other investors bullish on the company included Lone Pine Capital, Kora Management, and Alkeon Capital Management. In terms of the portfolio weights assigned to each position Cartica Management allocated the biggest weight to Sea Limited (NYSE:SE), around 51.3% of its 13F portfolio. Kora Management is also relatively very bullish on the stock, earmarking 49.94 percent of its 13F equity portfolio to SE.

As one would reasonably expect, some big names have jumped into Sea Limited (NYSE:SE) headfirst. Melvin Capital Management, managed by Gabriel Plotkin, created the most outsized position in Sea Limited (NYSE:SE). Melvin Capital Management had $86.7 million invested in the company at the end of the quarter. Bo Shan’s Gobi Capital also initiated a $36.9 million position during the quarter. The other funds with brand new SE positions are Michael Pausic’s Foxhaven Asset Management, Run Ye, Junji Takegami and Hoyon Hwang’s Tiger Pacific Capital, and Rob Citrone’s Discovery Capital Management.

Let’s go over hedge fund activity in other stocks similar to Sea Limited (NYSE:SE). These stocks are Phillips 66 Partners LP (NYSE:PSXP), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Expeditors International of Washington, Inc. (NASDAQ:EXPD), and Citrix Systems, Inc. (NASDAQ:CTXS). This group of stocks’ market values match SE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PSXP 4 9647 1
KOF 12 488410 3
EXPD 27 361013 2
CTXS 27 1658692 -7
Average 17.5 629441 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $629 million. That figure was $3340 million in SE’s case. Expeditors International of Washington, Inc. (NASDAQ:EXPD) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 4 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on SE as the stock returned 243.2% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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