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Hedge Funds Have Never Been This Bullish On Sea Limited (SE)

Reymerlyn Martin

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Sea Limited (NYSE:SE), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Sea Limited (NYSE:SE) was in 64 hedge funds' portfolios at the end of September. SE shareholders have witnessed an increase in support from the world's most elite money managers lately. There were 60 hedge funds in our database with SE holdings at the end of the previous quarter. Our calculations also showed that SE 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 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 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.

[caption id="attachment_26088" align="aligncenter" width="600"] Chase Coleman of Tiger Global[/caption]

Chase Coleman of Tiger Global

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 take a glance at the fresh hedge fund action surrounding Sea Limited (NYSE:SE).

What have hedge funds been doing with Sea Limited (NYSE:SE)?

Heading into the fourth quarter of 2019, a total of 64 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in SE a year ago. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

SE_nov2019

The largest stake in Sea Limited (NYSE:SE) was held by Tiger Global Management, which reported holding $420.9 million worth of stock at the end of September. It was followed by Hillhouse Capital Management with a $370.1 million position. Other investors bullish on the company included Lone Pine Capital, Kora Management, and Alkeon Capital Management. In terms of the portfolio weights assigned to each position Cartica Management allocated the biggest weight to Sea Limited (NYSE:SE), around 51.3% of its portfolio. Kora Management is also relatively very bullish on the stock, earmarking 49.94 percent of its 13F equity portfolio to SE.

As aggregate interest increased, key money managers were breaking ground themselves. Melvin Capital Management, managed by Gabriel Plotkin, assembled the largest position in Sea Limited (NYSE:SE). Melvin Capital Management had $86.7 million invested in the company at the end of the quarter. Bo Shan's Gobi Capital also initiated a $36.9 million position during the quarter. The other funds with new positions in the stock are Michael Pausic's Foxhaven Asset Management, Run Ye, Junji Takegami and Hoyon Hwang's Tiger Pacific Capital, and Rob Citrone's Discovery Capital Management.

Let's now review hedge fund activity in other stocks similar to Sea Limited (NYSE:SE). These stocks are Phillips 66 Partners LP (NYSE:PSXP), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Expeditors International of Washington (NASDAQ:EXPD), and Citrix Systems, Inc. (NASDAQ:CTXS). This group of stocks' market caps are closest to SE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PSXP,4,9647,1 KOF,12,488410,3 EXPD,27,361013,2 CTXS,27,1658692,-7 Average,17.5,629441,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $629 million. That figure was $3340 million in SE's case. Expeditors International of Washington (NASDAQ:EXPD) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Sea Limited (NYSE:SE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on SE as the stock returned 20.4% during Q4 (through 11/22) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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