Where Do Hedge Funds Stand On China Telecom Corporation Limited (CHA)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in China Telecom Corporation Limited (NYSE:CHA)? The smart money sentiment can provide an answer to this question.

Is China Telecom Corporation Limited (NYSE:CHA) going to take off soon? Investors who are in the know were taking a pessimistic view. The number of bullish hedge fund positions were trimmed by 2 recently. China Telecom Corporation Limited (NYSE:CHA) was in 3 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 9. Our calculations also showed that CHA 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most market participants, hedge funds are seen as unimportant, old investment vehicles of yesteryear. While there are over 8000 funds trading at present, We hone in on the crème de la crème of this club, about 850 funds. These money managers preside over the lion’s share of the smart money’s total capital, and by tailing their first-class investments, Insider Monkey has found various investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship short hedge fund strategy exceeded 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 .

David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

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 10 most profitable companies in the world 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 let’s take a glance at the new hedge fund action surrounding China Telecom Corporation Limited (NYSE:CHA).

How are hedge funds trading China Telecom Corporation Limited (NYSE:CHA)?

Heading into the fourth quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -40% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CHA over the last 21 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CHA A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of China Telecom Corporation Limited (NYSE:CHA), with a stake worth $24.3 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $3 million. LMR Partners 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 LMR Partners allocated the biggest weight to China Telecom Corporation Limited (NYSE:CHA), around 0.06% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to CHA.

Judging by the fact that China Telecom Corporation Limited (NYSE:CHA) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds that slashed their positions entirely by the end of the third quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest stake of the “upper crust” of funds watched by Insider Monkey, worth about $1.9 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund cut about $0.6 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as China Telecom Corporation Limited (NYSE:CHA) but similarly valued. These stocks are The Trade Desk, Inc. (NASDAQ:TTD), McKesson Corporation (NYSE:MCK), Williams Companies, Inc. (NYSE:WMB), Sun Life Financial Inc. (NYSE:SLF), New Oriental Education & Technology Group Inc. (NYSE:EDU), Unity Software Inc. (NYSE:U), and American International Group Inc (NYSE:AIG). All of these stocks’ market caps match CHA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TTD 23 510796 3
MCK 54 1770079 -7
WMB 38 581626 -3
SLF 13 28463 -1
EDU 40 1753600 1
U 35 6701726 35
AIG 38 1770145 -2
Average 34.4 1873776 3.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.4 hedge funds with bullish positions and the average amount invested in these stocks was $1874 million. That figure was $30 million in CHA’s case. McKesson Corporation (NYSE:MCK) is the most popular stock in this table. On the other hand Sun Life Financial Inc. (NYSE:SLF) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks China Telecom Corporation Limited (NYSE:CHA) is even less popular than SLF. Our overall hedge fund sentiment score for CHA is 13. 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 dodged a bullet by taking a bearish stance towards CHA. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd but managed to beat the market again by 15.4 percentage points. Unfortunately CHA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CHA investors were disappointed as the stock returned 2.3% since the end of the third quarter (through 11/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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