Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to the smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Tencent Music Entertainment Group (NYSE:TME)? The smart money sentiment can provide an answer to this question.
Tencent Music Entertainment Group (NYSE:TME) was in 24 hedge funds’ portfolios at the end of September. The all time high for this statistic is 63. TME has seen a decrease in hedge fund sentiment recently. There were 35 hedge funds in our database with TME positions at the end of the second quarter. Our calculations also showed that TME isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
David E. Shaw of D.E. Shaw
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Keeping this in mind let’s go over the latest hedge fund action encompassing Tencent Music Entertainment Group (NYSE:TME).
Do Hedge Funds Think TME Is A Good Stock To Buy Now?
At third quarter’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in TME over the last 25 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Tencent Music Entertainment Group (NYSE:TME), which was worth $64.4 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $55.4 million worth of shares. Renaissance Technologies, Bridgewater Associates, and Millennium Management 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 Dalton Investments allocated the biggest weight to Tencent Music Entertainment Group (NYSE:TME), around 2.65% of its 13F portfolio. Tairen Capital is also relatively very bullish on the stock, setting aside 1.47 percent of its 13F equity portfolio to TME.
Seeing as Tencent Music Entertainment Group (NYSE:TME) has faced falling interest from hedge fund managers, logic holds that there lies a certain “tier” of fund managers who were dropping their entire stakes heading into Q4. It’s worth mentioning that Gil Simon’s SoMa Equity Partners dumped the biggest stake of the 750 funds tracked by Insider Monkey, totaling close to $193.5 million in stock, and Sanjay Venkat’s Jeneq Management was right behind this move, as the fund dropped about $35.4 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 11 funds heading into Q4.
Let’s now take a look at 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 Mohawk Industries, Inc. (NYSE:MHK), GFL Environmental Inc. (NYSE:GFL), Equitable Holdings, Inc. (NYSE:EQH), DaVita Inc (NYSE:DVA), Annaly Capital Management, Inc. (NYSE:NLY), Jack Henry & Associates, Inc. (NASDAQ:JKHY), and Ares Management Corp (NYSE:ARES). This group of stocks’ market caps are closest to TME’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MHK | 38 | 1263338 | -6 |
| GFL | 19 | 758568 | -4 |
| EQH | 46 | 1704423 | 1 |
| DVA | 39 | 4811137 | 0 |
| NLY | 15 | 34941 | -4 |
| JKHY | 21 | 200996 | -1 |
| ARES | 22 | 727606 | 2 |
| Average | 28.6 | 1357287 | -1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.6 hedge funds with bullish positions and the average amount invested in these stocks was $1357 million. That figure was $256 million in TME’s case. Equitable Holdings, Inc. (NYSE:EQH) is the most popular stock in this table. On the other hand Annaly Capital Management, Inc. (NYSE:NLY) is the least popular one with only 15 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. Our overall hedge fund sentiment score for TME is 19.9. 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 negative signal and 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 31.1% in 2021 through December 9th and surpassed the market again by 5.1 percentage points. Unfortunately TME wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); TME investors were disappointed as the stock returned -8.3% since the end of September (through 12/9) 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 most of these stocks already outperformed the market in 2021.
Follow Tencent Music Entertainment Group (NYSE:TME)
Follow Tencent Music Entertainment Group (NYSE:TME)
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Disclosure: None. This article was originally published at Insider Monkey.
