Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Tencent Music Entertainment Group (NYSE:TME) in this article.
Is Tencent Music Entertainment Group (NYSE:TME) the right investment to pursue these days? Investors who are in the know are in a pessimistic mood. The number of long hedge fund positions fell by 9 recently. Our calculations also showed that TME isn't among the 30 most popular stocks among hedge funds.
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 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.
[caption id="attachment_26088" align="aligncenter" width="508"] Chase Coleman of Tiger Global[/caption]
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 latest hedge fund action regarding Tencent Music Entertainment Group (NYSE:TME).
How are hedge funds trading Tencent Music Entertainment Group (NYSE:TME)?
Heading into the third quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -45% from the first quarter of 2019. By comparison, 0 hedge funds held shares or bullish call options in TME a year ago. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in Tencent Music Entertainment Group (NYSE:TME) was held by Segantii Capital, which reported holding $56.1 million worth of stock at the end of March. It was followed by Kingstown Capital Management with a $52.5 million position. Other investors bullish on the company included Tiger Global Management LLC, Citadel Investment Group, and Coatue Management.
Since Tencent Music Entertainment Group (NYSE:TME) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few money managers who sold off their positions entirely heading into Q3. Interestingly, Panayotis Takis Sparaggis's Alkeon Capital Management dumped the biggest position of all the hedgies monitored by Insider Monkey, valued at about $91.7 million in stock, and James Crichton's Hitchwood Capital Management was right behind this move, as the fund said goodbye to about $21.7 million worth. These moves are important to note, as total hedge fund interest fell by 9 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks similar to Tencent Music Entertainment Group (NYSE:TME). These stocks are PACCAR Inc (NASDAQ:PCAR), Sun Life Financial Inc. (NYSE:SLF), FleetCor Technologies, Inc. (NYSE:FLT), and Veeva Systems Inc (NYSE:VEEV). This group of stocks' market values resemble TME's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PCAR,27,153937,4 SLF,11,183793,0 FLT,40,1863052,6 VEEV,35,1355258,8 Average,28.25,889010,4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $889 million. That figure was $161 million in TME's case. FleetCor Technologies, Inc. (NYSE:FLT) 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 11 bullish hedge fund positions. Compared to these stocks Tencent Music Entertainment Group (NYSE:TME) is even less popular than SLF. Hedge funds dodged a bullet by taking a bearish stance towards TME. 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 TME wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TME investors were disappointed as the stock returned -14.8% 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. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.