Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of China Unicom (Hong Kong) Limited (NYSE:CHU).
China Unicom (Hong Kong) Limited (NYSE:CHU) was in 6 hedge funds' portfolios at the end of June. CHU has experienced a decrease in support from the world's most elite money managers recently. There were 8 hedge funds in our database with CHU holdings at the end of the previous quarter. Our calculations also showed that CHU isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a glance at the recent hedge fund action encompassing China Unicom (Hong Kong) Limited (NYSE:CHU).
Hedge fund activity in China Unicom (Hong Kong) Limited (NYSE:CHU)
At Q2's end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in CHU a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of China Unicom (Hong Kong) Limited (NYSE:CHU), with a stake worth $40.8 million reported as of the end of March. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $21.8 million. Two Sigma Advisors, Millennium Management, and Sensato Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because China Unicom (Hong Kong) Limited (NYSE:CHU) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few fund managers that decided to sell off their positions entirely last quarter. Interestingly, Paul Marshall and Ian Wace's Marshall Wace LLP sold off the largest position of the "upper crust" of funds watched by Insider Monkey, worth an estimated $0.2 million in stock. Michael Platt and William Reeves's fund, BlueCrest Capital Mgmt., also dropped its stock, about $0.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds last quarter.
Let's now review hedge fund activity in other stocks similar to China Unicom (Hong Kong) Limited (NYSE:CHU). We will take a look at Valero Energy Corporation (NYSE:VLO), Red Hat, Inc. (NYSE:RHT), Carnival Corporation & Plc (NYSE:CCL), and Barclays PLC (NYSE:BCS). This group of stocks' market caps match CHU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VLO,35,792496,-5 RHT,61,6666536,-5 CCL,36,670965,8 BCS,12,130909,2 Average,36,2065227,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $2065 million. That figure was $64 million in CHU's case. Red Hat, Inc. (NYSE:RHT) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks China Unicom (Hong Kong) Limited (NYSE:CHU) is even less popular than BCS. Hedge funds dodged a bullet by taking a bearish stance towards CHU. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CHU wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CHU investors were disappointed as the stock returned -3.8% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.