Were Hedge Funds Right About Sea Limited (SE)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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 take a look at whether Sea Limited (NYSE:SE) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Sea Limited (NYSE:SE) investors should pay attention to an increase in hedge fund sentiment in recent months. Our calculations also showed that SE 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).

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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chase Coleman of Tiger Global

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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 let’s take a glance at the fresh hedge fund action encompassing Sea Limited (NYSE:SE).

How are hedge funds trading Sea Limited (NYSE:SE)?

At Q4’s end, a total of 76 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SE over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

The largest stake in Sea Limited (NYSE:SE) was held by Composite Capital, which reported holding $360.4 million worth of stock at the end of September. It was followed by Tiger Global Management LLC with a $336.2 million position. Other investors bullish on the company included Lone Pine Capital, Kora Management, and Coatue Management. In terms of the portfolio weights assigned to each position Composite Capital allocated the biggest weight to Sea Limited (NYSE:SE), around 68.14% of its 13F portfolio. Kora Management is also relatively very bullish on the stock, designating 52.25 percent of its 13F equity portfolio to SE.

As aggregate interest increased, key money managers have jumped into Sea Limited (NYSE:SE) headfirst. Composite Capital, managed by David Ma, established the most valuable position in Sea Limited (NYSE:SE). Composite Capital had $360.4 million invested in the company at the end of the quarter. GregardáHeje’s Kontiki Capital also made a $93.7 million investment in the stock during the quarter. The following funds were also among the new SE investors: Andreas Halvorsen’s Viking Global, Leung Chi Kit’s Kadensa Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Sea Limited (NYSE:SE) but similarly valued. These stocks are Alexandria Real Estate Equities Inc (NYSE:ARE), DISH Network Corp. (NASDAQ:DISH), Garmin Ltd. (NASDAQ:GRMN), and Fortinet Inc (NASDAQ:FTNT). All of these stocks’ market caps resemble SE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ARE 21 297129 -4
DISH 41 1617687 3
GRMN 26 509870 -4
FTNT 42 1764894 1
Average 32.5 1047395 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $1047 million. That figure was $3912 million in SE’s case. Fortinet Inc (NASDAQ:FTNT) is the most popular stock in this table. On the other hand Alexandria Real Estate Equities Inc (NYSE:ARE) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Sea Limited (NYSE:SE) is more popular among hedge funds. 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 lost 1.0% in 2020 through April 20th but still managed to beat the market by 11 percentage points. Hedge funds were also right about betting on SE as the stock returned 34.8% so far in 2020 (through April 20th) 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.
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.