We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Chunghwa Telecom Co., Ltd (NYSE:CHT) based on that data.
Is Chunghwa Telecom Co., Ltd (NYSE:CHT) worth your attention right now? The smart money is taking a pessimistic view. The number of long hedge fund positions fell by 1 recently. Our calculations also showed that CHT 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 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 S&P 500 ETFs by 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 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.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the recent hedge fund action regarding Chunghwa Telecom Co., Ltd (NYSE:CHT).
What have hedge funds been doing with Chunghwa Telecom Co., Ltd (NYSE:CHT)?
Heading into the first quarter of 2020, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the third quarter of 2019. By comparison, 2 hedge funds held shares or bullish call options in CHT a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies has the biggest position in Chunghwa Telecom Co., Ltd (NYSE:CHT), worth close to $120.6 million, accounting for 0.1% of its total 13F portfolio. On Renaissance Technologies’s heels is ExodusPoint Capital, led by Michael Gelband, holding a $0.3 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism include Ken Griffin’s Citadel Investment Group, James Chen’s Ovata Capital Management and . In terms of the portfolio weights assigned to each position Ovata Capital Management allocated the biggest weight to Chunghwa Telecom Co., Ltd (NYSE:CHT), around 0.16% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.09 percent of its 13F equity portfolio to CHT.
Because Chunghwa Telecom Co., Ltd (NYSE:CHT) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few hedge funds that slashed their positions entirely heading into Q4. Interestingly, Israel Englander’s Millennium Management said goodbye to the largest stake of the “upper crust” of funds followed by Insider Monkey, worth about $1.3 million in stock. D. E. Shaw’s fund, D E Shaw, also said goodbye to its stock, about $0.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds heading into Q4.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Chunghwa Telecom Co., Ltd (NYSE:CHT) but similarly valued. We will take a look at Republic Services, Inc. (NYSE:RSG), TAL Education Group (NYSE:TAL), T. Rowe Price Group, Inc. (NASDAQ:TROW), and Mercadolibre Inc (NASDAQ:MELI). This group of stocks’ market values are similar to CHT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RSG | 26 | 684129 | -9 |
| TAL | 30 | 1805173 | 9 |
| TROW | 27 | 215816 | 3 |
| MELI | 52 | 2809834 | 4 |
| Average | 33.75 | 1378738 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $1379 million. That figure was $121 million in CHT’s case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand Republic Services, Inc. (NYSE:RSG) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Chunghwa Telecom Co., Ltd (NYSE:CHT) is even less popular than RSG. Hedge funds clearly dropped the ball on CHT as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on CHT as the stock returned -2.1% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
