China Picks From The World's Largest Money Managers

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 |  Includes: BIDU, CYOU, DANG, FMCN, HRBN, RENN, SINA, SOHU, YOKU
by: GuruFundPicks

U.S. listed Chinese equities, as represented by the PowerShares Golden Dragon Halter USX China Portfolio (NYSEARCA:PGJ) have been in a downturn since April, off by 40% peak-to-nadir, dragged down by weakening fundamentals in the developed economies of the U.S. and Europe, and slowing growth in China. Recently, however, since the beginning of October, most Chinese stocks have staged a strong 25% rebound off of the lows at the end of September. While the short- to intermediate-term outlook is uncertain, the long-term outlook for China and most emerging economies continues to be bullish. As such, we believe that a well diversified portfolio focused on the long-term ought to have some weighting among Chinese equities.

In this article, via an analysis of the investing activities of the world largest fund managers, managing between $100 billion and over a trillion dollars, in China stocks, we aim to wade through the minefield of over 200 Chinese equities, and identify the ones that these mega fund managers are most bullish and bearish about. The list includes prominent managers such as Wellington Management ($1.6 trillion in total assets under management), Vanguard Group ($1.4 trillion), Fidelity Investments ($640 billion), T Rowe Price ($330 billion), and Goldman Sachs Asset Management ($580 billion), among others.

We determined based on our analysis that mega fund managers are bullish on the Chinese companies. During the June quarter, these mega fund managers together added a net $1.39 billion to their $21.06 billion prior quarter position in the group, selling $2.44 billion and buying $3.83 million worth of stocks in the group. While Chinese solar companies were included to determine the overall tone of mega fund managers toward the China group, we excluded describing the investing activities of these mega managers in Chinese solar companies, since they were covered separately in another article that focused on the investing activities of these mega fund managers in the solar sector.

The following are the major (non-solar) China companies that these mega fund managers are most bullish about (see Table):

  • Baidu Inc. (NASDAQ:BIDU): Often touted as the Google (NASDAQ:GOOG) of China, BIDU is a leading Chinese provider of internet search, targeted online advertising and other internet content services. Mega funds added a net $157 million to their $1.04 billion prior quarter position, and taken together mega funds hold 23.5% of the outstanding shares. The top buyer was T Rowe Price ($324 million), and the top mega fund holders are T Rowe Price ($2.53 billion) and Fidelity Investments ($1.56 billion). Overall, 517 institutions hold 70.7% of BIDU shares, with Baillie Gifford & Co ($3.61 billion) and T Rowe Price being the largest holders with 9.2% and 6.8% of the outstanding shares respectively. We recommended buying BIDU in our coverage of Chinese equities on October 3rd when it traded at $105, identifying it as the best opportunity among Chinese equities; it is now up 35% from that price in the last four weeks.
  • Sina Corp. (NASDAQ:SINA): SINA is a Chinese internet portal offering media content and services for China and global Chinese communities. Mega funds added a net $305 million to their $1.46 billion prior quarter position, and taken together mega funds hold 32.3% of the outstanding shares. The top buyers were Capital Research Global Investors ($282 million) and Goldman Sachs Asset Management ($95 million), and the top holders were T Rowe Price ($503 million) and Capital Research Global Investors ($317 million). Overall, 250 institutions hold 72.6% of SINA shares, with T Rowe Price and FIL Ltd. ($364 million) being the largest holders with 7.8% and 6.3% of the outstanding shares respectively. We recommended selling SINA in our coverage of Chinese equities on September 26th when it traded just north of $82; it closed Monday at $81.29 while the average Chinese stock is up 10% during that same period.
  • Youku.com Inc. (NYSE:YOKU): YOKU, China's largest video-streaming company, is more popularly known as the YouTube of China. But in reality, it is more a combination of Netflix and YouTube; Netflix, because it offers mostly professionally-generated content licensed from movie studios and TV companies, and YouTube due to its reliance on advertising as a main source of revenue. Mega funds added a net $240 million to their $147 million prior quarter position, and taken together mega funds hold 23.6% of the outstanding shares. The top buyers were Janus Capital Management ($74 million) and T Rowe Price ($65 million). Overall, 134 institutions hold 66.4% of YOKU shares, with Brookside Capital Management ($290 million), Maverick Capital ($201 million) and Marisco Capital Management ($189 million) being the largest holders with 12.1%, 8.4% and 7.9% of the outstanding shares respectively. We turned bearish on YOKU in our coverage on August 15th when it traded at $26; it closed Monday at $21.24 while the average Chinese stock is down about 5% during that same period.
  • Renren Inc. (NYSE:RENN): RENN, often called the Facebook of China, is a Chinese operator of a social networking platform that enables users to communicate and share information via Renren.com. Mega funds taken together added a new $192 million position during the June quarter, and taken together mega funds hold 10.4% of the outstanding shares. The top buyers were Morgan Stanley ($65 million), Goldman Sachs Asset Management ($48 million) and Fidelity Investments ($46 million). Overall, 73 institutions hold 12.7% of YOKU shares, with General Atlantic LLC ($95 million) and Morgan Stanley being the largest holders with 1.8% and 1.2% of the outstanding shares respectively. We recommended buying RENN in our coverage of Chinese equities on October 3rd when it traded at $4.80s; it closed Monday at $7.04, up 45% from where we recommended it four weeks ago.
  • Focus Media Holdings Ltd. (NASDAQ:FMCN): FMCN operates the largest out-of-the-home digital advertising network in China through 131,006 flat-panel and 324,364 poster frame displays. Mega funds added a net $169 million to their $542 million prior quarter position, and taken together mega funds hold 17.9% of the outstanding shares. The top buyers were Fidelity Investments ($155 million) and Capital World Investors ($45 million). Overall, 200 institutions hold 56.6% of FMCN shares, with Fidelity Investments ($274 million) being the largest holder with 7.3% of the outstanding shares. We recommended buying FMCN in our coverage of big movers on October 5th when it traded in the $20 range; it closed Monday at $27.18, up over 35% from where we recommended it four weeks ago.

The following are the major (non-solar) China companies that these mega fund managers are most bearish about (see Table):

  • Sohu.com Inc. (NASDAQ:SOHU): SOHU is the third largest internet portal and a leading brand in China. It offers Chinese language web navigational and search capabilities, twelve main content channels, Web-based communications and community services, and a platform for e-commerce services. Mega funds cut a net $139 million from their $714 million prior quarter position, and taken together mega funds hold 24.5% of the outstanding shares. The top sellers were Oppenheimer Funds ($120 million) and Vanguard Group Inc. ($94 million). Overall, 213 institutions hold 65.8% of SOHU shares, with Orbis Holdings Ltd. ($468 million) and Morgan Stanley ($227 million) being the largest holders with 17.7% and 8.6% of the outstanding shares respectively. We recommended buying SOHU in our coverage of Chinese equities on October 3rd when it traded at $47, identifying it as a screaming buy, especially in relation to its peer SINA; it is now up 30% from that price in the last four weeks.
  • E-commerce China Dangdang (NYSE:DANG): DANG is a Chinese online retailer offering books and other media, personal care and general merchandise via Dangdang.com. Often called the Amazon (NASDAQ:AMZN) of China, DANG is the number two e-Commerce player in China, behind TaoBao. Its business model is similar to AMZN except that it employs a courier-based delivery system that collects cash on delivery. Mega funds cut a net $26 million from their $52 million prior quarter position, and taken together mega funds hold 4.6% of the outstanding shares. The top sellers were Fidelity Investments ($16 million) and Wellington Capital Management ($8 million). Overall, 85 institutions hold 12.5% of DANG shares, with Morgan Stanley ($13 million) being the largest holders with 2.3% of the outstanding shares. We recommended buying DANG in our coverage of Chinese equities on October 3rd when it traded at $4.80s; it closed Monday at $6.97, up over 45% from where we recommended it four weeks ago.
  • Chanyou.com Ltd. (NASDAQ:CYOU): CYOU is a Chinese provider of free-to-play massively multi-player online role-playing games (MMORPGs), which are interactive online games that can be played simultaneously by various game players. Mega funds cut a net $24 million from their $83 million prior quarter position, and taken together mega funds hold 4.3% of the outstanding shares. The top sellers were Oppenheimer Funds ($9 million) and Barclays Global Investors ($6 million). Overall, 78 institutions hold 14.0% of CYOU shares, with HSBC Holdings ($38 million) being the largest holder with 6.5% of the outstanding shares.
  • Harbin Electric Inc. (NASDAQ:HRBN): HRBN is a Chinese manufacturer of electric motors, including industrial rotary, linear, and specialty motors. Mega funds cut a net $25 million from their $56 million prior quarter position, and taken together mega funds hold 4.2% of the outstanding shares. The top sellers were Vanguard Group ($17 million) and Bank of New York Mellon Corp. ($7 million). Overall, 106 institutions hold 35.4% of HRBN shares, with Pentwater Capital Management ($49 million) being the largest holder with 6.9% of the outstanding shares.

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General Methodology and Background Information: The latest available institutional 13-F filings of over 30+ mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group. These mega fund managers number less than one percent of all funds and yet they control almost half of the U.S. equity discretionary fund assets. The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.