We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards China Mobile Limited (NYSE:CHL) and determine whether hedge funds skillfully traded this stock.
China Mobile Limited (NYSE:CHL) investors should pay attention to a decrease in enthusiasm from smart money in recent months. CHL was in 11 hedge funds' portfolios at the end of the first quarter of 2020. There were 12 hedge funds in our database with CHL holdings at the end of the previous quarter. Our calculations also showed that CHL 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.
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 58 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.
[caption id="attachment_324853" align="aligncenter" width="400"] Joshua Friedman of Canyon Capital Advisors[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's take a gander at the key hedge fund action encompassing China Mobile Limited (NYSE:CHL).
How have hedgies been trading China Mobile Limited (NYSE:CHL)?
At Q1's end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CHL over the last 18 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies has the most valuable position in China Mobile Limited (NYSE:CHL), worth close to $284.6 million, accounting for 0.3% of its total 13F portfolio. On Renaissance Technologies's heels is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $105.3 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish encompass John W. Rogers's Ariel Investments, Joshua Friedman and Mitchell Julis's Canyon Capital Advisors and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position ZWEIG DIMENNA PARTNERS allocated the biggest weight to China Mobile Limited (NYSE:CHL), around 0.64% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, dishing out 0.55 percent of its 13F equity portfolio to CHL.
Since China Mobile Limited (NYSE:CHL) has faced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there were a few money managers that slashed their positions entirely heading into Q4. Interestingly, James Chen's Ovata Capital Management said goodbye to the largest stake of the "upper crust" of funds monitored by Insider Monkey, valued at close to $27 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund dumped about $2.1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds heading into Q4.
Let's check out hedge fund activity in other stocks similar to China Mobile Limited (NYSE:CHL). These stocks are Adobe Inc. (NASDAQ:ADBE), Oracle Corporation (NASDAQ:ORCL), Novo Nordisk A/S (NYSE:NVO), and Abbott Laboratories (NYSE:ABT). All of these stocks' market caps resemble CHL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADBE,115,8180671,9 ORCL,48,2437677,-11 NVO,24,3036975,1 ABT,62,2189754,0 Average,62.25,3961269,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 62.25 hedge funds with bullish positions and the average amount invested in these stocks was $3961 million. That figure was $450 million in CHL's case. Adobe Inc. (NASDAQ:ADBE) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks China Mobile Limited (NYSE:CHL) is even less popular than NVO. Hedge funds dodged a bullet by taking a bearish stance towards CHL. 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 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately CHL wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); CHL investors were disappointed as the stock returned -7.9% during the second quarter 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.
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Disclosure: None. This article was originally published at Insider Monkey.