Hedge Funds Are Buying Chunghwa Telecom Co., Ltd (CHT)

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. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Chunghwa Telecom Co., Ltd (NYSE:CHT).

Chunghwa Telecom Co., Ltd (NYSE:CHT) was in 6 hedge funds’ portfolios at the end of the first quarter of 2020. CHT investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. There were 4 hedge funds in our database with CHT holdings at the end of the previous quarter. Our calculations also showed that CHT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Paul Marshall of Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the recent hedge fund action surrounding Chunghwa Telecom Co., Ltd (NYSE:CHT).

How are hedge funds trading Chunghwa Telecom Co., Ltd (NYSE:CHT)?

At the end of the first quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in CHT a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Chunghwa Telecom Co., Ltd (NYSE:CHT) was held by Renaissance Technologies, which reported holding $122 million worth of stock at the end of September. It was followed by Marshall Wace LLP with a $0.4 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Ovata Capital Management allocated the biggest weight to Chunghwa Telecom Co., Ltd (NYSE:CHT), around 0.14% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.12 percent of its 13F equity portfolio to CHT.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most outsized position in Chunghwa Telecom Co., Ltd (NYSE:CHT). Marshall Wace LLP had $0.4 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $0.4 million position during the quarter. The only other fund with a brand new CHT position is Israel Englander’s Millennium Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Chunghwa Telecom Co., Ltd (NYSE:CHT) but similarly valued. These stocks are ICICI Bank Limited (NYSE:IBN), Constellation Brands, Inc. (NYSE:STZ), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), and Lloyds Banking Group PLC (NYSE:LYG). This group of stocks’ market valuations are similar to CHT’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $572 million. That figure was $124 million in CHT’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Chunghwa Telecom Co., Ltd (NYSE:CHT) is even less popular than LYG. Hedge funds dodged a bullet by taking a bearish stance towards CHT. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately CHT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); CHT investors were disappointed as the stock returned 7.6% during the second quarter (through June 10th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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