Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards HSBC Holdings plc (NYSE:HSBC).
Is HSBC a good stock to buy now? Hedge fund interest in HSBC Holdings plc (NYSE:HSBC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that HSBC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). 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 Gilead Sciences, Inc. (NASDAQ:GILD), The Estee Lauder Companies Inc (NYSE:EL), and Target Corporation (NYSE:TGT) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
To most market participants, hedge funds are viewed as underperforming, old financial tools of years past. While there are greater than 8000 funds trading at the moment, Our researchers hone in on the leaders of this group, about 850 funds. These money managers oversee the lion’s share of the hedge fund industry’s total asset base, and by following their unrivaled stock picks, Insider Monkey has identified many investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to take a peek at the fresh hedge fund action surrounding HSBC Holdings plc (NYSE:HSBC).
Do Hedge Funds Think HSBC Is A Good Stock To Buy Now?
At third quarter’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in HSBC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in HSBC Holdings plc (NYSE:HSBC) was held by Renaissance Technologies, which reported holding $185.5 million worth of stock at the end of September. It was followed by LMR Partners with a $77 million position. Other investors bullish on the company included Citadel Investment Group, PEAK6 Capital Management, and Segantii Capital. In terms of the portfolio weights assigned to each position LMR Partners allocated the biggest weight to HSBC Holdings plc (NYSE:HSBC), around 1.58% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, dishing out 0.97 percent of its 13F equity portfolio to HSBC.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Prelude Capital (previously Springbok Capital)).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as HSBC Holdings plc (NYSE:HSBC) but similarly valued. These stocks are Gilead Sciences, Inc. (NASDAQ:GILD), The Estee Lauder Companies Inc (NYSE:EL), Target Corporation (NYSE:TGT), Zoetis Inc (NYSE:ZTS), Stryker Corporation (NYSE:SYK), CVS Health Corporation (NYSE:CVS), and Morgan Stanley (NYSE:MS). This group of stocks’ market values are closest to HSBC’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 57.3 hedge funds with bullish positions and the average amount invested in these stocks was $2395 million. That figure was $276 million in HSBC’s case. Morgan Stanley (NYSE:MS) is the most popular stock in this table. On the other hand The Estee Lauder Companies Inc (NYSE:EL) is the least popular one with only 46 bullish hedge fund positions. Compared to these stocks HSBC Holdings plc (NYSE:HSBC) is even less popular than EL. Our overall hedge fund sentiment score for HSBC is 21.7. 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. Hedge funds clearly dropped the ball on HSBC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on HSBC as the stock returned 36% since Q3 (through December 8th) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.