Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards China Mobile Limited (NYSE:CHL).
China Mobile Limited (NYSE:CHL) has seen a decrease in enthusiasm from smart money recently. CHL was in 13 hedge funds' portfolios at the end of June. There were 19 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.
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 look at the key hedge fund action surrounding China Mobile Limited (NYSE:CHL).
What does smart money think about China Mobile Limited (NYSE:CHL)?
At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -32% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CHL over the last 16 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.
The largest stake in China Mobile Limited (NYSE:CHL) was held by Renaissance Technologies, which reported holding $245.5 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $122.7 million position. Other investors bullish on the company included Ariel Investments, Two Sigma Advisors, and Millennium Management.
Judging by the fact that China Mobile Limited (NYSE:CHL) has witnessed falling interest from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of hedgies who sold off their entire stakes last quarter. Interestingly, Richard Driehaus's Driehaus Capital said goodbye to the biggest position of the 750 funds followed by Insider Monkey, valued at close to $8.2 million in stock. Lee Ainslie's fund, Maverick Capital, also sold off its stock, about $5.5 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 6 funds last quarter.
Let's go over hedge fund activity in other stocks similar to China Mobile Limited (NYSE:CHL). These stocks are PepsiCo, Inc. (NASDAQ:PEP), Toyota Motor Corporation (NYSE:TM), Anheuser-Busch InBev SA/NV (NYSE:BUD), and HSBC Holdings plc (NYSE:HSBC). This group of stocks' market valuations match CHL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PEP,55,3618380,4 TM,8,193342,-2 BUD,18,1763569,-4 HSBC,16,1133528,4 Average,24.25,1677205,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $1677 million. That figure was $444 million in CHL's case. PepsiCo, Inc. (NASDAQ:PEP) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 8 bullish hedge fund positions. China Mobile Limited (NYSE:CHL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CHL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CHL investors were disappointed as the stock returned -6.4% 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.