Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
China Petroleum & Chemical Corp (ADR) (NYSE:SNP) investors should be aware of an increase in hedge fund sentiment in recent months. There were 11 hedge funds in our database with SNP positions at the end of September, up by two quarter-over-quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Honeywell International Inc. (NYSE:HON), Eli Lilly & Co. (NYSE:LLY), and NIKE, Inc. (NYSE:NKE) to gather more data points.
Follow China Petro & Chemical Corp (NYSE:SNP)
Follow China Petro & Chemical Corp (NYSE:SNP)
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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How have hedgies been trading China Petroleum & Chemical Corp (ADR) (NYSE:SNP)?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 22% rise from the previous quarter. The graph below displays the number of hedge funds with bullish positions in SNP over the last 5 quarters, which has steadily risen, though within a narrow range. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, has the most valuable position in China Petroleum & Chemical Corp (ADR) (NYSE:SNP), worth close to $18.4 million. The second largest stake is held by Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $7 million position. Remaining hedge funds and institutional investors with similar optimism consist of Israel Englander’s Millennium Management, Steve Cohen’s Point72 Asset Management, and Cliff Asness’ AQR Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-micro-cap stocks.
As industry-wide interest jumped, specific money managers were leading the bulls’ herd. LMR Partners, led by Ben Levine, Andrew Manuel and Stefan Renold, initiated the most outsized position in China Petroleum & Chemical Corp (ADR) (NYSE:SNP). LMR Partners had $1.4 million invested in the company at the end of the quarter. Ernest Chow and Jonathan Howe’s Sensato Capital Management also initiated a $0.8 million position during the quarter. The following funds were also among the new SNP investors: Ken Griffin’s Citadel Investment Group and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s go over hedge fund activity in other stocks similar to China Petroleum & Chemical Corp (ADR) (NYSE:SNP). These stocks are Honeywell International Inc. (NYSE:HON), Eli Lilly & Co. (NYSE:LLY), NIKE, Inc. (NYSE:NKE), and Walgreens Boots Alliance Inc (NASDAQ:WBA). This group of stocks’ market valuations are similar to SNP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HON | 48 | 1612992 | 0 |
| LLY | 55 | 2889477 | 6 |
| NKE | 55 | 3720614 | -2 |
| WBA | 60 | 3125492 | -7 |
As you can see these stocks had an average of 55 hedge funds with bullish positions and the average amount invested in these stocks was $2.84 billion. That figure was just $41 million in SNP’s case. Walgreens Boots Alliance Inc (NASDAQ:WBA) is the most popular stock in this table. On the other hand Honeywell International Inc. (NYSE:HON) is the least popular one with only 48 bullish hedge fund positions. Compared to these stocks China Petroleum & Chemical Corp (ADR) (NYSE:SNP) is even less popular than HON. 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 at all, considering its size.
Disclosure: None
