The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Chunghwa Telecom Co., Ltd (NYSE:CHT) and find out how it is affected by hedge funds’ moves.
Chunghwa Telecom Co., Ltd (NYSE:CHT) has seen an increase in hedge fund sentiment recently. CHT was in 5 hedge funds’ portfolios at the end of the third quarter of 2019. There were 3 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 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.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Paul Marshall of Marshall Wace
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 as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to take a look at the new hedge fund action surrounding Chunghwa Telecom Co., Ltd (NYSE:CHT).
Hedge fund activity in Chunghwa Telecom Co., Ltd (NYSE:CHT)
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 67% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CHT over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Chunghwa Telecom Co., Ltd (NYSE:CHT), with a stake worth $115.5 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $1.3 million. D E Shaw, Citadel Investment Group, and Marshall Wace were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Chunghwa Telecom Co., Ltd (NYSE:CHT), around 0.1% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, earmarking 0.0021 percent of its 13F equity portfolio to CHT.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, established the largest position in Chunghwa Telecom Co., Ltd (NYSE:CHT). Millennium Management had $1.3 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.2 million investment in the stock during the quarter. The only other fund with a brand new CHT position is Paul Marshall and Ian Wace’s Marshall Wace.
Let’s now review hedge fund activity in other stocks similar to Chunghwa Telecom Co., Ltd (NYSE:CHT). These stocks are Eversource Energy (NYSE:ES), Mercadolibre Inc (NASDAQ:MELI), CRH PLC (NYSE:CRH), and SBA Communications Corporation (NASDAQ:SBAC). All of these stocks’ market caps match CHT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ES | 19 | 739026 | -2 |
| MELI | 45 | 3156793 | -7 |
| CRH | 9 | 129764 | 2 |
| SBAC | 37 | 1537833 | 6 |
| Average | 27.5 | 1390854 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $1391 million. That figure was $117 million in CHT’s case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) 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 CRH. Hedge funds dodged a bullet by taking a bearish stance towards CHT. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CHT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CHT investors were disappointed as the stock returned 4.3% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
