Were Hedge Funds Right About HSBC Holdings plc (HSBC)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and 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. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether HSBC Holdings plc (NYSE:HSBC) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

HSBC Holdings plc (NYSE:HSBC) investors should pay attention to an increase in hedge fund interest recently. Our calculations also showed that HSBC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

To most traders, hedge funds are viewed as slow, outdated investment tools of yesteryear. While there are more than 8000 funds in operation at present, Our researchers look at the crème de la crème of this club, approximately 850 funds. These hedge fund managers shepherd most of all hedge funds’ total asset base, and by monitoring their matchless stock picks, Insider Monkey has formulated several investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Clint Carlson of Carlson Capital

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the latest hedge fund action encompassing HSBC Holdings plc (NYSE:HSBC).

Hedge fund activity in HSBC Holdings plc (NYSE:HSBC)

At Q4’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in HSBC a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Is HSBC A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the most valuable position in HSBC Holdings plc (NYSE:HSBC). Fisher Asset Management has a $624.6 million position in the stock, comprising 0.6% of its 13F portfolio. On Fisher Asset Management’s heels is Renaissance Technologies, with a $291.7 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other peers that are bullish comprise Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Simon Sadler’s Segantii Capital and Clint Carlson’s Carlson Capital. In terms of the portfolio weights assigned to each position LMR Partners allocated the biggest weight to HSBC Holdings plc (NYSE:HSBC), around 4.06% of its 13F portfolio. Segantii Capital is also relatively very bullish on the stock, dishing out 3.78 percent of its 13F equity portfolio to HSBC.

Now, some big names have jumped into HSBC Holdings plc (NYSE:HSBC) headfirst. D E Shaw, managed by D. E. Shaw, initiated the most outsized position in HSBC Holdings plc (NYSE:HSBC). D E Shaw had $3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $1.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Mike Vranos’s Ellington, and Roy Vermus and Shlomi Bracha’s Noked Capital.

Let’s now review hedge fund activity in other stocks similar to HSBC Holdings plc (NYSE:HSBC). We will take a look at NIKE, Inc. (NYSE:NKE), Abbott Laboratories (NYSE:ABT), Medtronic plc (NYSE:MDT), and The Unilever Group (NYSE:UN). 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
NKE 81 2510260 12
ABT 62 2055531 -3
MDT 66 2500872 10
UN 15 1009132 -2
Average 56 2018949 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 56 hedge funds with bullish positions and the average amount invested in these stocks was $2019 million. That figure was $1119 million in HSBC’s case. NIKE, Inc. (NYSE:NKE) is the most popular stock in this table. On the other hand The Unilever Group (NYSE:UN) is the least popular one with only 15 bullish hedge fund positions. HSBC Holdings plc (NYSE:HSBC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately HSBC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HSBC investors were disappointed as the stock returned -33.4% during the same time period 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 in 2020.
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.