In this article we will analyze whether Sea Limited (NYSE:SE) 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 by double digits annually.
Sea Limited (NYSE:SE) investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. Sea Limited (NYSE:SE) was in 98 hedge funds’ portfolios at the end of March. The all time high for this statistic is 115. Our calculations also showed that SE ranked #21 among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
John Armitage of Egerton Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s take a look at the recent hedge fund action surrounding Sea Limited (NYSE:SE).
Do Hedge Funds Think SE Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 98 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SE over the last 23 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Chase Coleman’s Tiger Global Management LLC has the most valuable position in Sea Limited (NYSE:SE), worth close to $2.1219 billion, amounting to 4.9% of its total 13F portfolio. The second largest stake is held by Kora Management, led by Nitin Saigal and Dan Jacobs, holding a $777.7 million position; the fund has 79.4% of its 13F portfolio invested in the stock. Other peers that are bullish include Philippe Laffont’s Coatue Management, Catherine D. Wood’s ARK Investment Management and Christopher Lyle’s SCGE Management. In terms of the portfolio weights assigned to each position Kora Management allocated the biggest weight to Sea Limited (NYSE:SE), around 79.42% of its 13F portfolio. ShawSpring Partners is also relatively very bullish on the stock, setting aside 30.39 percent of its 13F equity portfolio to SE.
Since Sea Limited (NYSE:SE) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few money managers that slashed their positions entirely heading into Q2. It’s worth mentioning that Rajiv Jain’s GQG Partners dropped the largest stake of the 750 funds tracked by Insider Monkey, comprising close to $458.9 million in stock. Gabriel Plotkin’s fund, Melvin Capital Management, also sold off its stock, about $129.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 17 funds heading into Q2.
Let’s also examine hedge fund activity in other stocks similar to Sea Limited (NYSE:SE). These stocks are General Electric Company (NYSE:GE), BlackRock, Inc. (NYSE:BLK), American Express Company (NYSE:AXP), PetroChina Company Limited (NYSE:PTR), Airbnb, Inc. (NASDAQ:ABNB), Goldman Sachs Group, Inc. (NYSE:GS), and 3M Company (NYSE:MMM). This group of stocks’ market valuations resemble SE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GE | 68 | 6166147 | -1 |
| BLK | 42 | 1524856 | -11 |
| AXP | 53 | 24475341 | -7 |
| PTR | 8 | 73088 | 3 |
| ABNB | 52 | 2417824 | -16 |
| GS | 77 | 5057213 | 1 |
| MMM | 41 | 1519815 | -3 |
| Average | 48.7 | 5890612 | -4.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 48.7 hedge funds with bullish positions and the average amount invested in these stocks was $5891 million. That figure was $10433 million in SE’s case. Goldman Sachs Group, Inc. (NYSE:GS) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Sea Limited (NYSE:SE) is more popular among hedge funds. Our overall hedge fund sentiment score for SE is 63.6. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 25.8% in 2021 through August 6th but still managed to beat the market by 6.7 percentage points. Hedge funds were also right about betting on SE as the stock returned 35.6% since the end of March (through 8/6) 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.
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Disclosure: None. This article was originally published at Insider Monkey.
