It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Tencent Music Entertainment Group (NYSE:TME).
Is Tencent Music Entertainment Group (NYSE:TME) a safe investment right now? The smart money is getting more optimistic. The number of bullish hedge fund bets improved by 4 lately. Our calculations also showed that TME isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Chase Coleman of Tiger Global
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s take a gander at the key hedge fund action regarding Tencent Music Entertainment Group (NYSE:TME).
What does smart money think about Tencent Music Entertainment Group (NYSE:TME)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TME over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, D1 Capital Partners, managed by Daniel Sundheim, holds the largest position in Tencent Music Entertainment Group (NYSE:TME). D1 Capital Partners has a $249 million position in the stock, comprising 3.4% of its 13F portfolio. The second largest stake is held by Kingstown Capital Management, led by Michael Blitzer, holding a $46.3 million position; 11.5% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism encompass Chase Coleman’s Tiger Global Management, Israel Englander’s Millennium Management and Simon Sadler’s Segantii Capital. In terms of the portfolio weights assigned to each position Kingstown Capital Management allocated the biggest weight to Tencent Music Entertainment Group (NYSE:TME), around 11.48% of its 13F portfolio. D1 Capital Partners is also relatively very bullish on the stock, earmarking 3.44 percent of its 13F equity portfolio to TME.
Now, key money managers were breaking ground themselves. D1 Capital Partners, managed by Daniel Sundheim, initiated the biggest position in Tencent Music Entertainment Group (NYSE:TME). D1 Capital Partners had $249 million invested in the company at the end of the quarter. David Fiszel’s Honeycomb Asset Management also made a $8.3 million investment in the stock during the quarter. The other funds with brand new TME positions are David E. Shaw’s D E Shaw, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Tencent Music Entertainment Group (NYSE:TME) but similarly valued. We will take a look at Zoom Video Communications, Inc. (NASDAQ:ZM), Wipro Limited (NYSE:WIT), McCormick & Company, Incorporated (NYSE:MKC), and The Kroger Co. (NYSE:KR). All of these stocks’ market caps match TME’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ZM | 30 | 468958 | -2 |
| WIT | 12 | 111102 | -2 |
| MKC | 27 | 138492 | -3 |
| KR | 25 | 632469 | -3 |
| Average | 23.5 | 337755 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $338 million. That figure was $379 million in TME’s case. Zoom Video Communications, Inc. (NASDAQ:ZM) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 12 bullish hedge fund positions. Tencent Music Entertainment Group (NYSE:TME) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TME wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TME investors were disappointed as the stock returned -2.7% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
