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. Is HDFC Bank Limited (NYSE:HDB) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is HDFC Bank Limited (NYSE:HDB) a buy here? Prominent investors are in a bearish mood. The number of long hedge fund positions retreated by 2 in recent months. Our calculations also showed that HDB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). HDB was in 39 hedge funds’ portfolios at the end of December. There were 41 hedge funds in our database with HDB positions at the end of the previous quarter.
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 we’re going to view the new hedge fund action surrounding HDFC Bank Limited (NYSE:HDB).
What have hedge funds been doing with HDFC Bank Limited (NYSE:HDB)?
Heading into the first quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in HDB a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, GQG Partners, managed by Rajiv Jain, holds the largest position in HDFC Bank Limited (NYSE:HDB). GQG Partners has a $1.1586 billion position in the stock, comprising 8% of its 13F portfolio. Coming in second is Fisher Asset Management, managed by Ken Fisher, which holds a $443.7 million position; 0.4% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions include John Armitage’s Egerton Capital Limited, Ryan Pedlow’s Two Creeks Capital Management and Robert Pohly’s Samlyn Capital. In terms of the portfolio weights assigned to each position Two Creeks Capital Management allocated the biggest weight to HDFC Bank Limited (NYSE:HDB), around 10.97% of its 13F portfolio. Prince Street Capital Management is also relatively very bullish on the stock, designating 8.68 percent of its 13F equity portfolio to HDB.
Seeing as HDFC Bank Limited (NYSE:HDB) has faced a decline in interest from hedge fund managers, it’s easy to see that there was a specific group of fund managers that elected to cut their full holdings last quarter. It’s worth mentioning that Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners sold off the largest stake of all the hedgies followed by Insider Monkey, totaling an estimated $56 million in stock, and Renaissance Technologies was right behind this move, as the fund said goodbye to about $34.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to HDFC Bank Limited (NYSE:HDB). These stocks are Linde plc (NYSE:LIN), Royal Bank of Canada (NYSE:RY), Lockheed Martin Corporation (NYSE:LMT), and Danaher Corporation (NYSE:DHR). This group of stocks’ market caps match HDB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LIN | 47 | 2791217 | 1 |
| RY | 20 | 336905 | 1 |
| LMT | 47 | 1777473 | -4 |
| DHR | 61 | 2354152 | -1 |
| Average | 43.75 | 1814937 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 43.75 hedge funds with bullish positions and the average amount invested in these stocks was $1815 million. That figure was $2768 million in HDB’s case. Danaher Corporation (NYSE:DHR) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 20 bullish hedge fund positions. HDFC Bank Limited (NYSE:HDB) 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 HDB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HDB investors were disappointed as the stock returned -23.6% 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.
