Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is China Unicom (Hong Kong) Limited (NYSE:CHU) ready to rally soon? Hedge funds are getting more bullish. The number of long hedge fund bets advanced by 2 recently. Our calculations also showed that CHU isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CHU was in 8 hedge funds' portfolios at the end of September. There were 6 hedge funds in our database with CHU positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746830" align="aligncenter" width="473"] Matthew Hulsizer of PEAK6 Capital[/caption]
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. We're going to take a glance at the key hedge fund action surrounding China Unicom (Hong Kong) Limited (NYSE:CHU).
What does smart money think about China Unicom (Hong Kong) Limited (NYSE:CHU)?
At Q3's end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CHU over the last 17 quarters. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in China Unicom (Hong Kong) Limited (NYSE:CHU) was held by Renaissance Technologies, which reported holding $43 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $19.7 million position. Other investors bullish on the company included Marshall Wace, Two Sigma Advisors, and PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Arrowstreet Capital allocated the biggest weight to China Unicom (Hong Kong) Limited (NYSE:CHU), around 0.05% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to CHU.
As one would reasonably expect, key money managers have been driving this bullishness. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the most outsized position in China Unicom (Hong Kong) Limited (NYSE:CHU). Marshall Wace had $1.4 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also initiated a $0.6 million position during the quarter. The other funds with new positions in the stock are Gavin Saitowitz and Cisco J. del Valle's Springbok Capital, Ken Griffin's Citadel Investment Group, and Matthew Hulsizer's PEAK6 Capital Management.
Let's also examine hedge fund activity in other stocks similar to China Unicom (Hong Kong) Limited (NYSE:CHU). These stocks are Shopify Inc (NYSE:SHOP), Equity Residential (NYSE:EQR), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Twitter Inc (NYSE:TWTR). All of these stocks' market caps are closest to CHU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHOP,34,2509650,8 EQR,23,196497,0 AMD,56,1135132,15 TWTR,50,2252822,3 Average,40.75,1523525,6.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.75 hedge funds with bullish positions and the average amount invested in these stocks was $1524 million. That figure was $66 million in CHU's case. Advanced Micro Devices, Inc. (NASDAQ:AMD) is the most popular stock in this table. On the other hand Equity Residential (NYSE:EQR) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks China Unicom (Hong Kong) Limited (NYSE:CHU) is even less popular than EQR. 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 -18.9% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.