Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
China Telecom Corporation Limited (NYSE:CHA) was in 7 hedge funds' portfolios at the end of June. CHA has seen a decrease in hedge fund sentiment in recent months. There were 8 hedge funds in our database with CHA holdings at the end of the previous quarter. Our calculations also showed that CHA 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.
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. We're going to take a gander at the key hedge fund action regarding China Telecom Corporation Limited (NYSE:CHA).
How are hedge funds trading China Telecom Corporation Limited (NYSE:CHA)?
At the end of the second quarter, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 5 hedge funds with a bullish position in CHA a year ago. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in China Telecom Corporation Limited (NYSE:CHA) was held by Renaissance Technologies, which reported holding $11.2 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $9.5 million position. Other investors bullish on the company included Millennium Management, Two Sigma Advisors, and Sensato Capital Management.
Because China Telecom Corporation Limited (NYSE:CHA) has experienced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there is a sect of hedgies that elected to cut their entire stakes last quarter. At the top of the heap, Michael Platt and William Reeves's BlueCrest Capital Mgmt. sold off the biggest stake of the 750 funds followed by Insider Monkey, worth an estimated $0.2 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dropped its stock, about $0 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as China Telecom Corporation Limited (NYSE:CHA) but similarly valued. These stocks are ICICI Bank Limited (NYSE:IBN), Fidelity National Information Services Inc. (NYSE:FIS), Ford Motor Company (NYSE:F), and Ferrari N.V. (NYSE:RACE). All of these stocks' market caps match CHA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IBN,29,912531,3 FIS,59,4783095,4 F,39,1594561,6 RACE,30,1266186,2 Average,39.25,2139093,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.25 hedge funds with bullish positions and the average amount invested in these stocks was $2139 million. That figure was $23 million in CHA's case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand ICICI Bank Limited (NYSE:IBN) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks China Telecom Corporation Limited (NYSE:CHA) is even less popular than IBN. Hedge funds dodged a bullet by taking a bearish stance towards CHA. 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 CHA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CHA investors were disappointed as the stock returned -8.9% 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.