Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about HDFC Bank Limited (NYSE:HDB).
HDFC Bank Limited (NYSE:HDB) investors should be aware of an increase in enthusiasm from smart money lately. Our calculations also showed that HDB 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.
Why do we pay any attention at all to hedge fund sentiment? 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 go over the key hedge fund action regarding HDFC Bank Limited (NYSE:HDB).
What does smart money think about HDFC Bank Limited (NYSE:HDB)?
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HDB over the last 16 quarters. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Among these funds, billionaire Ken Fisher's Fisher Asset Management held the most valuable stake in HDFC Bank Limited (NYSE:HDB), which was worth $525.1 million at the end of the second quarter. On the second spot was Two Creeks Capital Management which amassed $125.8 million worth of shares. Moreover, Driehaus Capital, Steadfast Capital Management, and Indus Capital were also bullish on HDFC Bank Limited (NYSE:HDB), allocating a large percentage of their portfolios to this stock.
Consequently, some big names have jumped into HDFC Bank Limited (NYSE:HDB) headfirst. Steadfast Capital Management, managed by Robert Pitts, initiated the most valuable position in HDFC Bank Limited (NYSE:HDB). Steadfast Capital Management had $90.7 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $6.4 million position during the quarter. The other funds with brand new HDB positions are Nehal Chopra's Ratan Capital Group, Matthew Tewksbury's Stevens Capital Management, and Paritosh Gupta's Adi Capital Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as HDFC Bank Limited (NYSE:HDB) but similarly valued. We will take a look at Broadcom Inc (NASDAQ:AVGO), Costco Wholesale Corporation (NASDAQ:COST), Royal Bank of Canada (NYSE:RY), and United Technologies Corporation (NYSE:UTX). This group of stocks' market valuations resemble HDB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVGO,53,3268502,0 COST,40,3254378,-4 RY,15,383122,-2 UTX,65,6543371,6 Average,43.25,3362343,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 43.25 hedge funds with bullish positions and the average amount invested in these stocks was $3362 million. That figure was $1160 million in HDB's case. United Technologies Corporation (NYSE:UTX) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 15 bullish hedge fund positions. HDFC Bank Limited (NYSE:HDB) 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 HDB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HDB investors were disappointed as the stock returned -12.1% 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.