Does HSBC Holdings plc (NYSE:HSBC) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
HSBC Holdings plc (NYSE:HSBC) shareholders have witnessed an increase in activity from the world's largest hedge funds recently. Our calculations also showed that HSBC isn't among the 30 most popular stocks among hedge funds (see the video below). 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' 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. Let's take a look at the fresh hedge fund action regarding HSBC Holdings plc (NYSE:HSBC).
Hedge fund activity in HSBC Holdings plc (NYSE:HSBC)
Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HSBC over the last 16 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of HSBC Holdings plc (NYSE:HSBC), with a stake worth $681 million reported as of the end of March. Trailing Fisher Asset Management was Renaissance Technologies, which amassed a stake valued at $203.1 million. Segantii Capital, Carlson Capital, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Carlson Capital, managed by Clint Carlson, assembled the most valuable position in HSBC Holdings plc (NYSE:HSBC). Carlson Capital had $62.1 million invested in the company at the end of the quarter. Ronald Hua's Qtron Investments also made a $0.3 million investment in the stock during the quarter. The other funds with brand new HSBC positions are Minhua Zhang's Weld Capital Management, Peter S. Stamos's Stamos Capital, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as HSBC Holdings plc (NYSE:HSBC) but similarly valued. We will take a look at SAP SE (NYSE:SAP), The Unilever Group (NYSE:UL), Netflix, Inc. (NASDAQ:NFLX), and Citigroup Inc. (NYSE:C). This group of stocks' market valuations match HSBC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAP,17,1479359,9 UL,10,424712,-3 NFLX,106,11090012,10 C,83,10543687,-4 Average,54,5884443,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 54 hedge funds with bullish positions and the average amount invested in these stocks was $5884 million. That figure was $1134 million in HSBC's case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Unilever plc (NYSE:UL) is the least popular one with only 10 bullish hedge fund positions. HSBC Holdings plc (NYSE:HSBC) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HSBC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HSBC investors were disappointed as the stock returned -7% 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.
Disclosure: None. This article was originally published at Insider Monkey.