Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether HSBC Holdings plc (NYSE:HSBC) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
HSBC Holdings plc (NYSE:HSBC) investors should be aware of an increase in activity from the world’s largest hedge funds recently. HSBC was in 18 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 16 hedge funds in our database with HSBC positions at the end of the previous quarter. Our calculations also showed that HSBC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Fisher of Fisher Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s check out the key hedge fund action encompassing HSBC Holdings plc (NYSE:HSBC).
How are hedge funds trading HSBC Holdings plc (NYSE:HSBC)?
Heading into the first quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HSBC over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of HSBC Holdings plc (NYSE:HSBC), with a stake worth $624.6 million reported as of the end of September. Trailing Fisher Asset Management was Renaissance Technologies, which amassed a stake valued at $291.7 million. LMR Partners, Segantii Capital, and Carlson Capital 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 LMR Partners allocated the biggest weight to HSBC Holdings plc (NYSE:HSBC), around 4.06% of its 13F portfolio. Segantii Capital is also relatively very bullish on the stock, designating 3.78 percent of its 13F equity portfolio to HSBC.
As one would reasonably expect, key hedge funds were breaking ground themselves. D E Shaw, managed by D. E. Shaw, assembled the most outsized position in HSBC Holdings plc (NYSE:HSBC). D E Shaw had $3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $1.5 million investment in the stock during the quarter. The following funds were also among the new HSBC investors: Dmitry Balyasny’s Balyasny Asset Management, Mike Vranos’s Ellington, and Roy Vermus and Shlomi Bracha’s Noked Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as HSBC Holdings plc (NYSE:HSBC) but similarly valued. These stocks are NIKE, Inc. (NYSE:NKE), Abbott Laboratories (NYSE:ABT), Medtronic plc (NYSE:MDT), and Unilever N.V. (NYSE:UN). This group of stocks’ market valuations are closest to HSBC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NKE | 81 | 2510260 | 12 |
| ABT | 62 | 2055531 | -3 |
| MDT | 66 | 2500872 | 10 |
| UN | 15 | 1009132 | -2 |
| Average | 56 | 2018949 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 56 hedge funds with bullish positions and the average amount invested in these stocks was $2019 million. That figure was $1119 million in HSBC’s case. NIKE, Inc. (NYSE:NKE) is the most popular stock in this table. On the other hand Unilever N.V. (NYSE:UN) is the least popular one with only 15 bullish hedge fund positions. HSBC Holdings plc (NYSE:HSBC) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately HSBC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HSBC investors were disappointed as the stock returned -18.5% during the same time period 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
