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Hedge Funds Are Dumping Tencent Music Entertainment Group (TME)

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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million 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 June 30th. We at Insider Monkey have made an extensive database of more than 873 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Tencent Music Entertainment Group (NYSE:TME) based on those filings.

Tencent Music Entertainment Group (NYSE:TME) investors should be aware of a decrease in hedge fund sentiment lately. Tencent Music Entertainment Group (NYSE:TME) was in 35 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 63. There were 63 hedge funds in our database with TME positions at the end of the first quarter. Our calculations also showed that TME isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace
Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we're going to analyze the fresh hedge fund action encompassing Tencent Music Entertainment Group (NYSE:TME).

Do Hedge Funds Think TME Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -44% from the first quarter of 2020. On the other hand, there were a total of 30 hedge funds with a bullish position in TME a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Is TME A Good Stock To Buy?
Is TME A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Gil Simon's SoMa Equity Partners has the number one position in Tencent Music Entertainment Group (NYSE:TME), worth close to $193.5 million, comprising 4.1% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, holding a $81.8 million position; 0.1% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish include Paul Marshall and Ian Wace's Marshall Wace LLP, Sanjay Venkat's Jeneq Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Tencent Music Entertainment Group (NYSE:TME), around 8.75% of its 13F portfolio. Jeneq Management is also relatively very bullish on the stock, earmarking 6.28 percent of its 13F equity portfolio to TME.

Judging by the fact that Tencent Music Entertainment Group (NYSE:TME) has experienced bearish sentiment from the smart money, it's easy to see that there were a few hedgies that slashed their entire stakes by the end of the second quarter. It's worth mentioning that Martin Taylor's Crake Asset Management dropped the largest stake of the "upper crust" of funds monitored by Insider Monkey, valued at an estimated $98 million in stock, and George Yang's Anatole Investment Management was right behind this move, as the fund dropped about $80.8 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 28 funds by the end of the second quarter.

Let's now review hedge fund activity in other stocks similar to Tencent Music Entertainment Group (NYSE:TME). These stocks are Etsy Inc (NASDAQ:ETSY), Generac Holdings Inc. (NYSE:GNRC), Slack Technologies Inc (NYSE:WORK), Hormel Foods Corporation (NYSE:HRL), Weyerhaeuser Co. (NYSE:WY), Kansas City Southern (NYSE:KSU), and Teladoc Health, Inc (NYSE:TDOC). This group of stocks' market caps resemble TME's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ETSY,47,1731703,-6 GNRC,38,594282,2 WORK,61,5328202,1 HRL,24,562433,-2 WY,39,662871,1 KSU,61,3303297,12 TDOC,43,3574007,1 Average,44.7,2250971,1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.7 hedge funds with bullish positions and the average amount invested in these stocks was $2251 million. That figure was $570 million in TME's case. Slack Technologies Inc (NYSE:WORK) is the most popular stock in this table. On the other hand Hormel Foods Corporation (NYSE:HRL) is the least popular one with only 24 bullish hedge fund positions. Tencent Music Entertainment Group (NYSE:TME) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TME is 8.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and surpassed the market again by 4.4 percentage points. Unfortunately TME wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); TME investors were disappointed as the stock returned -50.5% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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