U.S. Markets closed

Hedge Funds Are Dumping Sinopec Shanghai Petrochemical Company Limited (SHI)

Reymerlyn Martin

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on September 30th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) based on those filings.

Is Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) a buy, sell, or hold? Investors who are in the know are turning less bullish. The number of long hedge fund positions fell by 2 lately. Our calculations also showed that SHI isn't among the 30 most popular stocks among hedge funds. SHI was in 3 hedge funds' portfolios at the end of September. There were 5 hedge funds in our database with SHI holdings at the end of the previous quarter.

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_27676" align="aligncenter" width="355"] Israel Englander of Millennium Management[/caption]

MILLENNIUM MANAGEMENT

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's review the recent hedge fund action encompassing Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI).

What have hedge funds been doing with Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI)?

At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -40% from the second quarter of 2019. By comparison, 6 hedge funds held shares or bullish call options in SHI a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SHI_nov2019

More specifically, Renaissance Technologies was the largest shareholder of Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), with a stake worth $11.3 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $1.2 million. Citadel Investment Group was 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 Renaissance Technologies allocated the biggest weight to Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), around 0.01% of its portfolio. Millennium Management is also relatively very bullish on the stock, designating 0.0019 percent of its 13F equity portfolio to SHI.

Because Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) has experienced falling interest from the smart money, it's easy to see that there is a sect of hedgies that slashed their positions entirely heading into Q4. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the largest position of all the hedgies watched by Insider Monkey, comprising close to $3.3 million in stock, and Ernest Chow and Jonathan Howe's Sensato Capital Management was right behind this move, as the fund cut about $1 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q4.

Let's go over hedge fund activity in other stocks similar to Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI). These stocks are Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB), John Bean Technologies Corporation (NYSE:JBT), Darling Ingredients Inc. (NYSE:DAR), and Investors Bancorp, Inc. (NASDAQ:ISBC). All of these stocks' market caps match SHI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HOMB,11,12529,-2 JBT,14,102280,4 DAR,24,226792,8 ISBC,26,585162,3 Average,18.75,231691,3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $13 million in SHI's case. Investors Bancorp, Inc. (NASDAQ:ISBC) is the most popular stock in this table. On the other hand Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) is even less popular than HOMB. Hedge funds dodged a bullet by taking a bearish stance towards SHI. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately SHI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SHI investors were disappointed as the stock returned -7.1% during the fourth quarter (through 11/22) 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.

Related Content