Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Echostar Corporation (NASDAQ:SATS).
Echostar Corporation (NASDAQ:SATS) was in 26 hedge funds' portfolios at the end of the fourth quarter of 2019. SATS has experienced a decrease in hedge fund sentiment recently. There were 32 hedge funds in our database with SATS positions at the end of the previous quarter. Our calculations also showed that SATS isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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 stocks that are in our short portfolio.
[caption id="attachment_364880" align="aligncenter" width="400"] Nathaniel August of Mangrove Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now we're going to take a look at the fresh hedge fund action surrounding Echostar Corporation (NASDAQ:SATS).
What does smart money think about Echostar Corporation (NASDAQ:SATS)?
Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SATS over the last 18 quarters. With hedgies' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Echostar Corporation (NASDAQ:SATS), which was worth $169.4 million at the end of the third quarter. On the second spot was Hound Partners which amassed $145.2 million worth of shares. Mangrove Partners, Park West Asset Management, and Greenlight Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Hound Partners allocated the biggest weight to Echostar Corporation (NASDAQ:SATS), around 10.07% of its 13F portfolio. Mangrove Partners is also relatively very bullish on the stock, setting aside 9.67 percent of its 13F equity portfolio to SATS.
Because Echostar Corporation (NASDAQ:SATS) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there were a few funds that decided to sell off their entire stakes last quarter. It's worth mentioning that Derek C. Schrier's Indaba Capital Management dumped the largest stake of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $17.1 million in stock. Ken Griffin's fund, Citadel Investment Group, also said goodbye to its stock, about $4.5 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 6 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Echostar Corporation (NASDAQ:SATS) but similarly valued. These stocks are CoreSite Realty Corp (NYSE:COR), NIO Inc. (NYSE:NIO), Transocean Ltd (NYSE:RIG), and Cabot Microelectronics Corporation (NASDAQ:CCMP). This group of stocks' market valuations resemble SATS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COR,21,254981,4 NIO,16,68386,3 RIG,26,615765,-13 CCMP,24,382670,7 Average,21.75,330451,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $330 million. That figure was $641 million in SATS's case. Transocean Ltd (NYSE:RIG) is the most popular stock in this table. On the other hand NIO Inc. (NYSE:NIO) is the least popular one with only 16 bullish hedge fund positions. Echostar Corporation (NASDAQ:SATS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately SATS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SATS were disappointed as the stock returned -24.1% during the same time period 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 this year. 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.