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Were Hedge Funds Right About Piling Into Tencent Music Entertainment Group (TME)?

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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 866 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of March 31st, 2020. What do these smart investors think about Tencent Music Entertainment Group (NYSE:TME)?

Tencent Music Entertainment Group (NYSE:TME) has seen an increase in support from the world's most elite money managers in recent months. Tencent Music Entertainment Group (NYSE:TME) was in 63 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TME isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by 115 percentage points since March 2017 (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.

Gil Simon of SoMa Equity Partners
Gil Simon of SoMa Equity Partners

Gil Simon of SoMa Equity Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let's review the new hedge fund action encompassing Tencent Music Entertainment Group (NYSE:TME).

Do Hedge Funds Think TME Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 63 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 142% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in TME over the last 23 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the biggest position in Tencent Music Entertainment Group (NYSE:TME). D E Shaw has a $351 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by Gil Simon of SoMa Equity Partners, with a $245.9 million position; 5.4% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that hold long positions consist of Renaissance Technologies, Martin Taylor's Crake Asset Management and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Infini Capital allocated the biggest weight to Tencent Music Entertainment Group (NYSE:TME), around 16.16% of its 13F portfolio. Voleon Capital is also relatively very bullish on the stock, earmarking 14.08 percent of its 13F equity portfolio to TME.

Consequently, key money managers were breaking ground themselves. Element Capital Management, managed by Jeffrey Talpins, assembled the most valuable position in Tencent Music Entertainment Group (NYSE:TME). Element Capital Management had $46.5 million invested in the company at the end of the quarter. Josh Resnick's Jericho Capital Asset Management also made a $35.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Sanjay Venkat's Jeneq Management, Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, and George Soros's Soros Fund Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Tencent Music Entertainment Group (NYSE:TME) but similarly valued. These stocks are Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Hilton Worldwide Holdings Inc (NYSE:HLT), Corning Incorporated (NYSE:GLW), Zimmer Biomet Holdings Inc (NYSE:ZBH), Peloton Interactive, Inc. (NASDAQ:PTON), Marvell Technology, Inc. (NASDAQ:MRVL), and Orange SA (NYSE:ORAN). This group of stocks' market values resemble TME's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALXN,77,6915184,0 HLT,47,5139343,-13 GLW,32,507110,-7 ZBH,50,2151143,-3 PTON,64,3963327,1 MRVL,33,683159,-7 ORAN,2,10613,-1 Average,43.6,2767126,-4.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.6 hedge funds with bullish positions and the average amount invested in these stocks was $2767 million. That figure was $1771 million in TME's case. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is the most popular stock in this table. On the other hand Orange SA (NYSE:ORAN) is the least popular one with only 2 bullish hedge fund positions. Tencent Music Entertainment Group (NYSE:TME) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TME is 80.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.8% in 2021 through August 6th and beat the market again by 6.7 percentage points. Unfortunately TME wasn't nearly as popular as these 5 stocks and hedge funds that were betting on TME were disappointed as the stock returned -49% since the end of March (through 8/6) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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