At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) makes for a good investment right now.
Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds' portfolios at the end of the fourth quarter of 2018. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Aluminum Corp. of China Limited (NYSE:ACH), Bruker Corporation (NASDAQ:BRKR), and Brookfield Renewable Partners L.P. (NYSE:BEP) to gather more data points.
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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a peek at the new hedge fund action regarding Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI).
Hedge fund activity in Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI)
At the end of the fourth quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SHI over the last 14 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), which was worth $6.5 million at the end of the third quarter. On the second spot was Millennium Management which amassed $3.8 million worth of shares. Moreover, Sensato Capital Management, Citadel Investment Group, and Arrowstreet Capital were also bullish on Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), allocating a large percentage of their portfolios to this stock.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Stevens Capital Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Marshall Wace LLP).
Let's now review hedge fund activity in other stocks similar to Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI). These stocks are Aluminum Corp. of China Limited (NYSE:ACH), Bruker Corporation (NASDAQ:BRKR), Brookfield Renewable Partners L.P. (NYSE:BEP), and Itaú CorpBanca (NYSE:ITCB). All of these stocks' market caps match SHI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACH,4,4511,2 BRKR,26,325328,2 BEP,3,8243,1 ITCB,1,4355,0 Average,8.5,85609,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $13 million in SHI's case. Bruker Corporation (NASDAQ:BRKR) is the most popular stock in this table. On the other hand Itaú CorpBanca (NYSE:ITCB) is the least popular one with only 1 bullish hedge fund positions. Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that the top 15 most popular stocks among hedge funds returned 21.3% year-to-date through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on SHI, though not to the same extent, as the stock returned 17.0% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.