Although a deal has been in the works for quite some time and nothing concrete is out yet, many on Wall Street are hopeful that the U.S. and China will settle their trade war. The trade war has hurt a lot of companies on both sides, and China’s economy is in such a position that it seems to be more willing to agree to some of the U.S.’s demands which aren’t unreasonable at all. Adding to the optimism is a Trump comment, with the President saying "It's going to be a great deal. If it's not a great deal, we're not doing it. It's going well. Top officials are here. We're very well along on the deal. It's a very complex deal. one of the biggest deals ever made, maybe the biggest deal ever made. It will be a great deal for our farmers. Technology, intellectual property theft. Everything is covered."
With that said, let’s analyze how some companies including Apple Inc. (NASDAQ:AAPL), Tesla Inc. (NASDAQ:TSLA), The Boeing Company (NYSE:BA), Starbucks Corporation (NASDAQ:SBUX), and Archer-Daniels-Midland Company (NYSE:ADM) might benefit if the trade war ends and how some elite funds are positioned.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Apple could be a winner as a continuation of the trade war might have made iPhones more expensive in America due to tariffs on Chinese iPhone imports. Apple also wins from a truce in that the Chinese government is less likely to retaliate against it if the trade war gets worse. China is a big market for Apple and any retaliation would be bad for the bottom line. Warren Buffett’s Berkshire Hathaway owned around 249.5 million shares at the end of Q4, down 3 million shares. The trimming reportedly wasn't Warren Buffett's idea however.
Boeing could be a winner as it could potentially sell more airplanes to China. Although there is no guarantee that China will buy more American planes from a settlement, one way to narrow the trade gap is to buy big ticket items. Boeing is currently in crisis mode due to two Boeing 737 Max plane crashes within the last year. Although the company could potentially fix the problem with software and many airlines are still ordering the plane, Boeing could use any sort of lift from increased China demand. John Overdeck And David Siegel's Two Sigma Advisors raised its stake by 34% to just under 1 million shares at the end of December.
Archer Daniels Midland could be a winner as American farmers will likely benefit from any sort of commodity tariff lowering on China’s part. Archer Daniels Midland is a big food processes and commodities trading company. Cliff Asness' AQR Capital Management owned over 3.2 million shares at the end of Q4.
Tesla would benefit because it has a lot of intellectual property to protect. Tesla would also face less threat of Chinese government retaliation. Tesla previously got caught in the tariff battle due to increased Chinese tariffs and responded by accelerating the building of its Shanghai factory which hopefully will make around half a million vehicles per year in around five years. Many elite funds are short Tesla given its short float of around 20%.
Starbucks could be another winner in that it would face less retaliation if the trade war worsened. Starbucks has big expansion plans in China and the chain needs the necessary local approvals to make those plans a reality. Bill Ackman's Pershing Square established a new position of 11.75 million shares in Starbucks as of the end of December 2018. That position makes up 12.7% of Pershing Square's equity 13f portfolio.