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Hedge Funds Aren’t Crazy About Telecom Argentina S.A. (TEO) Anymore

Asma UL Husna

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 Telecom Argentina S.A. (NYSE:TEO).

Telecom Argentina S.A. (NYSE:TEO) investors should be aware of an increase in enthusiasm from smart money in recent months. Our calculations also showed that TEO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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_30614" align="aligncenter" width="489"] Howard Marks of Oaktree Capital Management[/caption]

Howard Marks OAKTREE CAPITAL MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to go over the fresh hedge fund action surrounding Telecom Argentina S.A. (NYSE:TEO).

What have hedge funds been doing with Telecom Argentina S.A. (NYSE:TEO)?

Heading into the fourth quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TEO over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Howard Marks's Oaktree Capital Management has the most valuable position in Telecom Argentina S.A. (NYSE:TEO), worth close to $13.1 million, accounting for 0.3% of its total 13F portfolio. Sitting at the No. 2 spot is Redwood Capital Management, led by Jonathan Kolatch, holding a $12.8 million position; 1.4% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish consist of Bruce J. Richards and Louis Hanover's Marathon Asset Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Redwood Capital Management allocated the biggest weight to Telecom Argentina S.A. (NYSE:TEO), around 1.4% of its 13F portfolio. Marathon Asset Management is also relatively very bullish on the stock, earmarking 1.25 percent of its 13F equity portfolio to TEO.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Marathon Asset Management, managed by Bruce J. Richards and Louis Hanover, assembled the biggest position in Telecom Argentina S.A. (NYSE:TEO). Marathon Asset Management had $2.8 million invested in the company at the end of the quarter. Renaissance Technologies also made a $0.4 million investment in the stock during the quarter. The only other fund with a brand new TEO position is Bart Baum's Ionic Capital Management.

Let's check out hedge fund activity in other stocks similar to Telecom Argentina S.A. (NYSE:TEO). We will take a look at Spirit Realty Capital Inc (NYSE:SRC), Clean Harbors Inc (NYSE:CLH), Qurate Retail, Inc. (NASDAQ:QRTEA), and The Stars Group Inc. (NASDAQ:TSG). This group of stocks' market values are similar to TEO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SRC,18,147316,-5 CLH,26,388088,-1 QRTEA,32,735658,-1 TSG,34,717299,-4 Average,27.5,497090,-2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $497 million. That figure was $29 million in TEO's case. The Stars Group Inc. (NASDAQ:TSG) is the most popular stock in this table. On the other hand Spirit Realty Capital Inc (NYSE:SRC) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Telecom Argentina S.A. (NYSE:TEO) is even less popular than SRC. Hedge funds clearly dropped the ball on TEO as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on TEO as the stock returned 11% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

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

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