How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding China Life Insurance Company Limited (NYSE:LFC).
China Life Insurance Company Limited (NYSE:LFC) investors should be aware of an increase in hedge fund sentiment in recent months. LFC was in 8 hedge funds’ portfolios at the end of the second quarter of 2019. There were 7 hedge funds in our database with LFC holdings at the end of the previous quarter. Our calculations also showed that LFC isn’t among the 30 most popular stocks among hedge funds (see the video at the end of this article).
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s analyze the new hedge fund action regarding China Life Insurance Company Limited (NYSE:LFC).
Hedge fund activity in China Life Insurance Company Limited (NYSE:LFC)
Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in LFC a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in China Life Insurance Company Limited (NYSE:LFC) was held by LMR Partners, which reported holding $15.2 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $15 million position. Other investors bullish on the company included Arrowstreet Capital, Segantii Capital, and Citadel Investment Group.
Now, some big names were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in China Life Insurance Company Limited (NYSE:LFC). Arrowstreet Capital had $9.4 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.4 million position during the quarter. The only other fund with a brand new LFC position is Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as China Life Insurance Company Limited (NYSE:LFC) but similarly valued. These stocks are Anthem Inc (NYSE:ANTM), CME Group Inc (NASDAQ:CME), CVS Health Corporation (NYSE:CVS), and Automatic Data Processing, Inc. (NASDAQ:ADP). This group of stocks’ market values resemble LFC’s market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANTM,66,4919379,-7 CME,39,1663130,-3 CVS,55,985752,-6 ADP,43,2736833,4 Average,50.75,2576274,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 50.75 hedge funds with bullish positions and the average amount invested in these stocks was $2576 million. That figure was $45 million in LFC’s case. Anthem Inc (NYSE:ANTM) is the most popular stock in this table. On the other hand CME Group Inc (NASDAQ:CME) is the least popular one with only 39 bullish hedge fund positions. Compared to these stocks China Life Insurance Company Limited (NYSE:LFC) is even less popular than CME. Hedge funds dodged a bullet by taking a bearish stance towards LFC. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately LFC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); LFC investors were disappointed as the stock returned -6.9% during the third quarter 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 many of these stocks already outperformed the market so far in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.