U.S. Markets closed

Hedge Funds Aren’t Crazy About Hutchison China MediTech Limited (HCM) Anymore

Debasis Saha

Is Hutchison China MediTech Limited (NASDAQ:HCM) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Hutchison China MediTech Limited (NASDAQ:HCM) the right pick for your portfolio? Investors who are in the know are selling. The number of long hedge fund bets retreated by 13 recently. Our calculations also showed that HCM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Today there are a large number of formulas shareholders have at their disposal to assess publicly traded companies. A pair of the most innovative formulas are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the best picks of the elite hedge fund managers can outpace their index-focused peers by a superb margin (see the details here).

Sander Gerber of Hudson Bay Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the key hedge fund action regarding Hutchison China MediTech Limited (NASDAQ:HCM).

How are hedge funds trading Hutchison China MediTech Limited (NASDAQ:HCM)?

At Q3's end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -57% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in HCM a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is HCM A Good Stock To Buy?

Among these funds, Hudson Bay Capital Management held the most valuable stake in Hutchison China MediTech Limited (NASDAQ:HCM), which was worth $5.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $2.8 million worth of shares. Citadel Investment Group, Maso Capital, and Moon Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Maso Capital allocated the biggest weight to Hutchison China MediTech Limited (NASDAQ:HCM), around 0.44% of its 13F portfolio. Moon Capital is also relatively very bullish on the stock, earmarking 0.39 percent of its 13F equity portfolio to HCM.

Due to the fact that Hutchison China MediTech Limited (NASDAQ:HCM) has witnessed falling interest from the smart money, it's safe to say that there were a few money managers that elected to cut their positions entirely by the end of the third quarter. At the top of the heap, Scott Bessent's Key Square Capital Management said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, comprising about $24.3 million in stock, and Simon Sadler's Segantii Capital was right behind this move, as the fund sold off about $19.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 13 funds by the end of the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Hutchison China MediTech Limited (NASDAQ:HCM) but similarly valued. We will take a look at YETI Holdings, Inc. (NYSE:YETI), Red Rock Resorts, Inc. (NASDAQ:RRR), Welbilt, Inc. (NYSE:WBT), and Builders FirstSource, Inc. (NASDAQ:BLDR). This group of stocks' market caps are closest to HCM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position YETI,11,46603,-1 RRR,17,353606,1 WBT,26,792934,1 BLDR,36,499407,1 Average,22.5,423138,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $423 million. That figure was $14 million in HCM's case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand YETI Holdings, Inc. (NYSE:YETI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Hutchison China MediTech Limited (NASDAQ:HCM) is even less popular than YETI. Hedge funds clearly dropped the ball on HCM as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on HCM as the stock returned 35.1% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

Related Content