The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Verizon Communications Inc. (NYSE:VZ) and determine whether the smart money was really smart about this stock.
Verizon Communications Inc. (NYSE:VZ) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 68 hedge funds' portfolios at the end of June. Our calculations also showed that VZ 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). At the end of this article we will also compare VZ to other stocks including AT&T Inc. (NYSE:T), Adobe Inc. (NASDAQ:ADBE), and Bank of America Corporation (NYSE:BAC) to get a better sense of its popularity. 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 58 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.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we're going to take a look at the new hedge fund action regarding Verizon Communications Inc. (NYSE:VZ).
What have hedge funds been doing with Verizon Communications Inc. (NYSE:VZ)?
At second quarter's end, a total of 68 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 54 hedge funds with a bullish position in VZ a year ago. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Skye Global Management held the most valuable stake in Verizon Communications Inc. (NYSE:VZ), which was worth $446 million at the end of the third quarter. On the second spot was D E Shaw which amassed $426 million worth of shares. Two Sigma Advisors, AQR Capital Management, and Arrowstreet 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 Skye Global Management allocated the biggest weight to Verizon Communications Inc. (NYSE:VZ), around 17.36% of its 13F portfolio. Meru Capital is also relatively very bullish on the stock, setting aside 10.52 percent of its 13F equity portfolio to VZ.
Seeing as Verizon Communications Inc. (NYSE:VZ) has experienced declining sentiment from hedge fund managers, it's safe to say that there exists a select few money managers that elected to cut their entire stakes heading into Q3. At the top of the heap, Brian Ashford-Russell and Tim Woolley's Polar Capital said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, comprising about $39.9 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also sold off its stock, about $12.4 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Verizon Communications Inc. (NYSE:VZ) but similarly valued. These stocks are AT&T Inc. (NYSE:T), Adobe Inc. (NASDAQ:ADBE), Bank of America Corporation (NYSE:BAC), Paypal Holdings Inc (NASDAQ:PYPL), The Walt Disney Company (NYSE:DIS), Tesla Inc. (NASDAQ:TSLA), and Netflix, Inc. (NASDAQ:NFLX). This group of stocks' market values are similar to VZ's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position T,57,1659928,0 ADBE,104,9651462,-11 BAC,91,24357766,-4 PYPL,144,11406883,26 DIS,105,6819839,3 TSLA,63,5560864,2 NFLX,113,13487546,4 Average,96.7,10420613,2.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 96.7 hedge funds with bullish positions and the average amount invested in these stocks was $10421 million. That figure was $2974 million in VZ's case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand AT&T Inc. (NYSE:T) is the least popular one with only 57 bullish hedge fund positions. Verizon Communications Inc. (NYSE:VZ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VZ is 41.3. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 28.2% in 2020 through August 24th and surpassed the market by 20.6 percentage points. Unfortunately VZ wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); VZ investors were disappointed as the stock returned 9.3% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.