On February 15, HHLR, an independent fund management platform under Hillhouse Capital, which focuses on secondary market investments, disclosed its holdings in US stocks as of the end of the fourth quarter of 2024. This announcement sheds light on the evolving strategies of hedge funds in the ever-shifting investment landscape, particularly concerning Chinese stocks.

HHLR has maintained a strong focus on Chinese companies, progressively increasing its investment in this area over the year. In the second quarter of the previous year, the firm's holdings in Chinese stocks represented 85% of its total portfolio, which jumped to 93% by the third quarter. By the final quarter of the year, eight out of the top ten holdings were Chinese firms, including major players like BeiGene and Alibaba, as well as Pinduoduo, Netease, Beike, Vipshop, Legend Biotech, and Futu Holdings. This pattern indicates HHLR's ongoing commitment to Chinese assets.

According to regulations set by the SEC, hedge fund managers with assets exceeding $100 million are required to file a "13F form" within 45 days of a quarter's end. This document reveals details regarding their stock and bond holdings and is often regarded as a barometer of market trends.

When examining HHLR's trading activities, it becomes evident that the firm is decidedly bullish on Chinese equities. In the fourth quarter, two of the four new stocks purchased were Chinese: Agora and Momo's parent company, Zhihu. Additionally, among the ten stocks HHLR increased its positions in during the fourth quarter, four were Chinese, notably JD, Beike, Futu Holdings, and Dada Group. Notably, Agora has soared over 200% since September 2024, illustrating HHLR's acute market timing. Similarly, Futu Holdings has experienced a price increase exceeding 100% since the fourth quarter of 2024.

While HHLR has focused heavily on Chinese equities, it also diversified its portfolio in the fourth quarter by purchasing WNS, a business process management company headquartered in Mumbai, India, which has now entered the top ten holdings list. The stock price of WNS has risen more than 30% since mid-January.

A retrospective view of HHLR's holdings over the past year reflects its adaptive investment strategy. The journey began in the first quarter with a pronounced preference for technology stocks, particularly in the semiconductor and artificial intelligence sectors. Notably, over 50% of the 20 new stocks acquired during that period fell within the semiconductor and electronic technology industries, featuring global leaders such as AMD, Nvidia, and TSMC. This trend was driven by breakthroughs in global AI technologies, particularly the explosive growth of generative AI which spurred a surge in demand for computing power. Interestingly, during this period, HHLR markedly reduced its stake in Chinese stocks, nearly liquidating its positions in companies like JD, Alibaba, and iQIYI.

As the firm moved into the second quarter, its investment focus shifted significantly. A standout moment was the transformation of its position in Alibaba, shifting from an almost complete sell-off at the end of Q1 to a massive acquisition of 5.24 million shares in Q2, thereby becoming its third-largest holding, accounting for 9.55% of the portfolio. This strategic repositioning suggested that HHLR was capitalizing on the perceived valuation recovery of Alibaba and anticipating a rebound in consumer spending. Concurrently, it ramped up its investments in other consumer-facing internet companies such as Vipshop, Netease, and Trip.com, as well as establishing a new stake in Futu Holdings, lifting its Chinese stock holdings to an 85% portfolio share.

The third quarter marked an extreme concentration of HHLR's portfolio in Chinese equities, with the proportion rising from 85% in the second quarter to 93%. Of the ten largest positions, nine were occupied by Chinese companies, spanning various sectors like e-commerce, biopharmaceuticals, and online travel. BeiGene led with a remarkable quarterly gain of 57.36%. Conversely, HHLR approached US tech stocks with caution, liquidating AMD and significantly reducing its position in Microsoft, simultaneously scouring for new opportunities in AI and cloud computing. Such actions reveal HHLR's belief that despite a complex market environment, technological innovation is still the core driver of economic growth.

By the fourth quarter, HHLR diversified its investments to include sectors like technology, renewable energy, advanced manufacturing, and integrated circuits. This diversification strategy demonstrates HHLR's intention to hedge against market volatility while still recognizing potential growth opportunities.

HHLR smartly implemented measures to balance risk and reward within its portfolio. Following a surge in Pinduoduo's stock price, HHLR opted to reduce its holdings to lock in some profits. During the fourth quarter, HHLR divested from 11 stocks, including BeiGene, Alibaba, Trip.com, and Sohu, many of which had seen significant price increases, while completely liquidating positions in Baidu and other entities including a uranium tracking ETF and Huazhu.

For an extended period, BeiGene remained HHLR's top holding. Hillhouse had supported BeiGene through eight financing rounds since 2014. In the fourth quarter of 2024, BeiGene’s stock reached its highest level in a year and a half, showcasing an over 80% increase from April to October. In December of the previous year, it was announced that HHLR and its affiliates reduced its stake to 9.02%. Meanwhile, Alibaba, HHLR's second-largest position, saw its stock price soar by 63% from July to October 2024, in line with the wave of Chinese tech stock re-evaluation.

Currently, with US stocks hovering at historical highs, HHLR's portfolio rebalancing in the fourth quarter appears not only strategic in terms of profit-taking but also a calculated approach to risk management.

In a revealing contrast, on the same day as HHLR's disclosure, Bridgewater Associates announced that they had initiated a new position with 153,500 shares of Tesla in the fourth quarter while significantly reducing holdings in six out of the seven largest US tech giants. Remarkably, despite these reductions, Google, Nvidia, Meta, and Microsoft remain in Bridgewater's top ten holdings, although Amazon and Apple have dropped from ninth and tenth positions to eleventh and twenty-second, respectively.

Conversely, BlackRock adopted a more aggressive stance during the fourth quarter, significantly increasing its stakes in the “big seven” US tech companies, ensuring they remain in the top ten holdings while liquidating its position in supermicro computers, which benefited immensely from its deep ties to Nvidia. This divergence in strategies among institutional investors highlights the contrasting perspectives on the ongoing AI boom and potential market bubbles within the US stock landscape.