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Hedge Funds Are Buying Telecom Argentina S.A. (TEO)

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·6 min read
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A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on Telecom Argentina S.A. (NYSE:TEO).

Telecom Argentina S.A. (NYSE:TEO) investors should pay attention to an increase in support from the world's most elite money managers recently. Telecom Argentina S.A. (NYSE:TEO) was in 5 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 14. There were 3 hedge funds in our database with TEO positions at the end of the second quarter. 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 for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 66 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.

Andre Perold of HighVista Strategies

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let's go over the key hedge fund action regarding Telecom Argentina S.A. (NYSE:TEO).

What does smart money think about Telecom Argentina S.A. (NYSE:TEO)?

At Q3's end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 67% from the second quarter of 2020. By comparison, 4 hedge funds held shares or bullish call options in TEO a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Oaktree Capital Management, managed by Howard Marks, holds the most valuable position in Telecom Argentina S.A. (NYSE:TEO). Oaktree Capital Management has a $14.8 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is Redwood Capital Management, led by Jonathan Kolatch, holding a $9.7 million position; 0.7% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that are bullish comprise Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Matthew Hulsizer's PEAK6 Capital Management. 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 0.74% of its 13F portfolio. Oaktree Capital Management is also relatively very bullish on the stock, dishing out 0.32 percent of its 13F equity portfolio to TEO.

Consequently, key money managers were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in Telecom Argentina S.A. (NYSE:TEO). Arrowstreet Capital had $0.7 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $0.1 million investment in the stock during the quarter. The only other fund with a brand new TEO position is Andre F. Perold's HighVista Strategies.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Telecom Argentina S.A. (NYSE:TEO) but similarly valued. We will take a look at PotlatchDeltic Corporation (NASDAQ:PCH), Lemonade, Inc. (NYSE:LMND), Hexcel Corporation (NYSE:HXL), Radian Group Inc (NYSE:RDN), Triton International Limited (NYSE:TRTN), Select Medical Holdings Corporation (NYSE:SEM), and Laureate Education, Inc. (NASDAQ:LAUR). This group of stocks' market valuations resemble TEO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PCH,26,234211,4 LMND,15,109894,15 HXL,20,176457,2 RDN,38,300642,5 TRTN,16,164268,2 SEM,22,114598,0 LAUR,25,225833,-6 Average,23.1,189415,3.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $189 million. That figure was $25 million in TEO's case. Radian Group Inc (NYSE:RDN) is the most popular stock in this table. On the other hand Lemonade, Inc. (NYSE:LMND) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Telecom Argentina S.A. (NYSE:TEO) is even less popular than LMND. Our overall hedge fund sentiment score for TEO is 17.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on TEO as the stock returned 25.8% since Q3 (through November 27th) and outperformed the market by an even larger margin.

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

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