Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.
Is Consolidated Communications Holdings Inc (NASDAQ:CNSL) the right investment to pursue these days? Money managers are in a bullish mood. The number of bullish hedge fund positions moved up by 3 lately. Our calculations also showed that CNSL isn't among the 30 most popular stocks among hedge funds (see the video below). CNSL was in 14 hedge funds' portfolios at the end of the second quarter of 2019. There were 11 hedge funds in our database with CNSL positions at the end of the previous quarter. Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to analyze the fresh hedge fund action surrounding Consolidated Communications Holdings Inc (NASDAQ:CNSL).
How are hedge funds trading Consolidated Communications Holdings Inc (NASDAQ:CNSL)?
At Q2's end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CNSL over the last 16 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.
More specifically, Driehaus Capital was the largest shareholder of Consolidated Communications Holdings Inc (NASDAQ:CNSL), with a stake worth $2.7 million reported as of the end of March. Trailing Driehaus Capital was PDT Partners, which amassed a stake valued at $1.2 million. Citadel Investment Group, Arrowstreet Capital, and Balyasny Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, some big names were breaking ground themselves. Driehaus Capital, managed by Richard Driehaus, assembled the most outsized position in Consolidated Communications Holdings Inc (NASDAQ:CNSL). Driehaus Capital had $2.7 million invested in the company at the end of the quarter. Peter Muller's PDT Partners also made a $1.2 million investment in the stock during the quarter. The other funds with brand new CNSL positions are Andy Redleaf's Whitebox Advisors, Paul Tudor Jones's Tudor Investment Corp, and Noam Gottesman's GLG Partners.
Let's now review hedge fund activity in other stocks similar to Consolidated Communications Holdings Inc (NASDAQ:CNSL). We will take a look at Roadrunner Transportation Systems Inc (NYSE:RRTS), Inseego Corp. (NASDAQ:INSG), MasterCraft Boat Holdings, Inc. (NASDAQ:MCFT), and Motorcar Parts of America, Inc. (NASDAQ:MPAA). This group of stocks' market valuations resemble CNSL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RRTS,2,325001,-5 INSG,8,21906,-7 MCFT,17,91965,1 MPAA,13,93803,4 Average,10,133169,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $9 million in CNSL's case. MasterCraft Boat Holdings, Inc. (NASDAQ:MCFT) is the most popular stock in this table. On the other hand Roadrunner Transportation Systems Inc (NYSE:RRTS) is the least popular one with only 2 bullish hedge fund positions. Consolidated Communications Holdings Inc (NASDAQ:CNSL) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CNSL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CNSL were disappointed as the stock returned -3.4% during the third quarter 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.
Disclosure: None. This article was originally published at Insider Monkey.