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Should You Avoid BT Group plc (BT) Like Hedge Funds Did?

Asma UL Husna

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze BT Group plc (NYSE:BT).

BT Group plc (NYSE:BT) was in 12 hedge funds' portfolios at the end of June. BT shareholders have witnessed a decrease in support from the world's most elite money managers in recent months. There were 14 hedge funds in our database with BT holdings at the end of the previous quarter. Our calculations also showed that BT isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

According to most investors, hedge funds are perceived as unimportant, old investment vehicles of years past. While there are greater than 8000 funds with their doors open at the moment, We hone in on the upper echelon of this group, around 750 funds. These investment experts shepherd the majority of the hedge fund industry's total asset base, and by following their top picks, Insider Monkey has come up with numerous investment strategies that have historically outrun the S&P 500 index. Insider Monkey's flagship hedge fund strategy defeated the S&P 500 index by around 5 percentage points per year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

BT_oct2019

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. We're going to check out the fresh hedge fund action encompassing BT Group plc (NYSE:BT).

How have hedgies been trading BT Group plc (NYSE:BT)?

Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BT over the last 16 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Dmitry Balyasny

When looking at the institutional investors followed by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital has the largest position in BT Group plc (NYSE:BT), worth close to $40.6 million, amounting to 0.1% of its total 13F portfolio. The second most bullish fund is Renaissance Technologies, with a $28 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that hold long positions encompass Ken Griffin's Citadel Investment Group, D. E. Shaw's D E Shaw and Matthew Tewksbury's Stevens Capital Management.

Because BT Group plc (NYSE:BT) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there were a few hedgies that slashed their full holdings last quarter. At the top of the heap, Minhua Zhang's Weld Capital Management said goodbye to the biggest stake of the 750 funds monitored by Insider Monkey, valued at about $1.7 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund dropped about $1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let's check out hedge fund activity in other stocks similar to BT Group plc (NYSE:BT). We will take a look at Willis Towers Watson Public Limited Company (NASDAQ:WLTW), Royal Caribbean Cruises Ltd. (NYSE:RCL), Cintas Corporation (NASDAQ:CTAS), and Digital Realty Trust, Inc. (NYSE:DLR). This group of stocks' market caps are similar to BT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WLTW,33,1693637,0 RCL,46,1329751,-1 CTAS,27,552648,0 DLR,18,264025,2 Average,31,960015,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $960 million. That figure was $83 million in BT's case. Royal Caribbean Cruises Ltd. (NYSE:RCL) is the most popular stock in this table. On the other hand Digital Realty Trust, Inc. (NYSE:DLR) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks BT Group plc (NYSE:BT) is even less popular than DLR. Hedge funds dodged a bullet by taking a bearish stance towards BT. 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 BT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BT investors were disappointed as the stock returned -39% 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.

Disclosure: None. This article was originally published at Insider Monkey.

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