Were Hedge Funds Right About OneConnect Financial Technology Co., Ltd. (OCFT) ?
Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 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 OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) makes for a good investment right now.
OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) has seen an increase in hedge fund interest recently. OCFT was in 9 hedge funds' portfolios at the end of December. There were 0 hedge funds in our database with OCFT holdings at the end of the previous quarter. Our calculations also showed that OCFT isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_673253" align="aligncenter" width="399"]
Jeffrey Talpins of Element Capital[/caption]
Now let's view the key hedge fund action encompassing OneConnect Financial Technology Co., Ltd. (NYSE:OCFT).
How have hedgies been trading OneConnect Financial Technology Co., Ltd. (NYSE:OCFT)?
Heading into the first quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9 from the previous quarter. Below, you can check out the change in hedge fund sentiment towards OCFT over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) was held by Schonfeld Strategic Advisors, which reported holding $3.3 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $3 million position. Other investors bullish on the company included Millennium Management, Element Capital Management, and Moore Global Investments. In terms of the portfolio weights assigned to each position Element Capital Management allocated the biggest weight to OneConnect Financial Technology Co., Ltd. (NYSE:OCFT), around 0.48% of its 13F portfolio. Schonfeld Strategic Advisors is also relatively very bullish on the stock, dishing out 0.08 percent of its 13F equity portfolio to OCFT.
Now, some big names have been driving this bullishness. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), created the most valuable position in OneConnect Financial Technology Co., Ltd. (NYSE:OCFT). Schonfeld Strategic Advisors had $3.3 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $3 million position during the quarter. The other funds with brand new OCFT positions are Israel Englander's Millennium Management, Jeffrey Talpins's Element Capital Management, and Louis Bacon's Moore Global Investments.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) but similarly valued. These stocks are Community Bank System, Inc. (NYSE:CBU), Ingevity Corporation (NYSE:NGVT), Envestnet Inc (NYSE:ENV), and LivaNova PLC (NASDAQ:LIVN). This group of stocks' market valuations resemble OCFT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBU,10,18225,-5 NGVT,27,158927,1 ENV,18,86201,3 LIVN,22,195956,5 Average,19.25,114827,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $15 million in OCFT's case. Ingevity Corporation (NYSE:NGVT) is the most popular stock in this table. On the other hand Community Bank System, Inc. (NYSE:CBU) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) is even less popular than CBU. Hedge funds clearly dropped the ball on OCFT as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on OCFT as the stock returned -1.8% during the same time period and outperformed the market by an even larger margin.
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.
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