Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze China Petroleum & Chemical Corp (NYSE: SNP ) from the perspective of those elite funds.
China Petroleum & Chemical Corp (NYSE: SNP ) was in 13 hedge funds' portfolios at the end of March. SNP shareholders have witnessed a decrease in enthusiasm from smart money of late. There were 15 hedge funds in our database with SNP holdings at the end of the previous quarter. Our calculations also showed that SNP isn't among the 30 most popular stocks among hedge funds .
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 ( 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's view the recent hedge fund action regarding China Petroleum & Chemical Corp (NYSE: SNP ).
What have hedge funds been doing with China Petroleum & Chemical Corp (NYSE:SNP)?
Heading into the second quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in SNP a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies , managed by Jim Simons, holds the number one position in China Petroleum & Chemical Corp (NYSE:SNP). Renaissance Technologies has a $144.8 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Arrowstreet Capital , managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $54.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers that are bullish encompass John Overdeck and David Siegel's Two Sigma Advisors , Israel Englander's Millennium Management and Ernest Chow and Jonathan Howe's Sensato Capital Management .
Since China Petroleum & Chemical Corp (NYSE:SNP) has faced bearish sentiment from hedge fund managers, it's safe to say that there were a few hedgies that slashed their entire stakes in the third quarter. Intriguingly, Noam Gottesman's GLG Partners cut the largest position of all the hedgies watched by Insider Monkey, totaling close to $1 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund sold off about $0.4 million worth. These moves are interesting, as total hedge fund interest fell by 2 funds in the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as China Petroleum & Chemical Corp (NYSE:SNP) but similarly valued. We will take a look at United Parcel Service, Inc. (NYSE: UPS ), Linde plc (NYSE: LIN ), British American Tobacco plc (NYSE: BTI ), and Danaher Corporation (NYSE: DHR ). This group of stocks' market values resemble SNP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UPS,37,1006858,5 LIN,37,1629340,0 BTI,15,316057,5 DHR,58,3081018,10 Average,36.75,1508318,5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.75 hedge funds with bullish positions and the average amount invested in these stocks was $1508 million. That figure was $251 million in SNP's case. Danaher Corporation (NYSE: DHR ) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE: BTI ) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks China Petroleum & Chemical Corp (NYSE:SNP) is even less popular than BTI. Hedge funds dodged a bullet by taking a bearish stance towards SNP. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately SNP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SNP investors were disappointed as the stock returned -11.5% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey .