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Should You Buy Sinopec Shanghai Petrochemical Company Limited (SHI)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI).

Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds’ portfolios at the end of the first quarter of 2020. 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 Medpace Holdings, Inc. (NASDAQ:MEDP), Ultrapar Participacoes SA (NYSE:UGP), and Braskem SA (NYSE:BAK) to gather more data points. Our calculations also showed that SHI isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 44 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

New York Stock Exchange

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the latest hedge fund action regarding Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI).

Hedge fund activity in Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI)

At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SHI over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), which was worth $11.3 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $0.3 million worth of shares. Bourgeon Capital was 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 Renaissance Technologies allocated the biggest weight to Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), around 0.01% of its 13F portfolio. Bourgeon Capital is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to SHI.

Seeing as Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) has witnessed declining sentiment from the smart money, it’s easy to see that there were a few money managers who were dropping their entire stakes last quarter. At the top of the heap, Israel Englander’s Millennium Management sold off the biggest position of all the hedgies followed by Insider Monkey, valued at close to $0.8 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $0.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI). These stocks are Medpace Holdings, Inc. (NASDAQ:MEDP), Ultrapar Participacoes SA (NYSE:UGP), Braskem SA (NYSE:BAK), and NuVasive, Inc. (NASDAQ:NUVA). This group of stocks’ market values are closest to SHI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MEDP 17 183270 0
UGP 5 25895 0
BAK 6 23630 1
NUVA 24 206412 -2
Average 13 109802 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $12 million in SHI’s case. NuVasive, Inc. (NASDAQ:NUVA) is the most popular stock in this table. On the other hand Ultrapar Participacoes SA (NYSE:UGP) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) is even less popular than UGP. Hedge funds dodged a bullet by taking a bearish stance towards SHI. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but managed to beat the market by 15.6 percentage points. Unfortunately SHI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); SHI investors were disappointed as the stock returned 1.2% during the second quarter (through May 22nd) 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 so far in 2020.

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