We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) and determine whether hedge funds skillfully traded this stock.
Is Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) a cheap investment today? Investors who are in the know were betting on the stock. The number of bullish hedge fund bets increased by 3 recently. Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) was in 23 hedge funds' portfolios at the end of June. The all time high for this statistics is 25. Our calculations also showed that ERIC isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Clint Carlson of Carlson Capital
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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let's review the recent hedge fund action encompassing Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC).
What does smart money think about Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC)?
At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ERIC over the last 20 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), which was worth $207.2 million at the end of the third quarter. On the second spot was Cavalry Asset Management which amassed $39.6 million worth of shares. Citadel Investment Group, Carlson Capital, and Balyasny Asset Management 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 13D Management allocated the biggest weight to Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), around 5.24% of its 13F portfolio. Cavalry Asset Management is also relatively very bullish on the stock, setting aside 5.14 percent of its 13F equity portfolio to ERIC.
As aggregate interest increased, key hedge funds were breaking ground themselves. Carlson Capital, managed by Clint Carlson, assembled the most valuable position in Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC). Carlson Capital had $23 million invested in the company at the end of the quarter. Larry Chen and Terry Zhang's Tairen Capital also initiated a $7.4 million position during the quarter. The other funds with new positions in the stock are Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management, Paul Hondros's AlphaOne Capital Partners, and Kevin McCarthy's Breakline Capital.
Let's go over hedge fund activity in other stocks similar to Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC). We will take a look at Southern Copper Corporation (NYSE:SCCO), Twilio Inc. (NYSE:TWLO), Cognizant Technology Solutions Corp (NASDAQ:CTSH), Chunghwa Telecom Co., Ltd (NYSE:CHT), The Allstate Corporation (NYSE:ALL), Match Group, Inc. (NASDAQ:MTCH), and Ross Stores, Inc. (NASDAQ:ROST). This group of stocks' market valuations are similar to ERIC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SCCO,19,222306,0 TWLO,66,3724819,14 CTSH,39,2593830,1 CHT,4,157957,-2 ALL,46,1451840,3 MTCH,39,1755544,1 ROST,50,767478,1 Average,37.6,1524825,2.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.6 hedge funds with bullish positions and the average amount invested in these stocks was $1525 million. That figure was $401 million in ERIC's case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 4 bullish hedge fund positions. Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ERIC is 50.9. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on ERIC as the stock returned 17.1% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.