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Hedge Funds Are Souring On Telephone & Data Systems, Inc. (TDS)

·6 min read

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Telephone & Data Systems, Inc. (NYSE:TDS)? The smart money sentiment can provide an answer to this question.

Telephone & Data Systems, Inc. (NYSE:TDS) was in 20 hedge funds' portfolios at the end of March. The all time high for this statistic is 29. TDS has experienced a decrease in support from the world's most elite money managers recently. There were 24 hedge funds in our database with TDS positions at the end of the fourth quarter. Our calculations also showed that TDS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Algert of Algert Global

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. With all of this in mind we're going to take a peek at the fresh hedge fund action encompassing Telephone & Data Systems, Inc. (NYSE:TDS).

Do Hedge Funds Think TDS Is A Good Stock To Buy Now?

At first quarter's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TDS over the last 23 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, Empyrean Capital Partners was the largest shareholder of Telephone & Data Systems, Inc. (NYSE:TDS), with a stake worth $45.6 million reported as of the end of March. Trailing Empyrean Capital Partners was GAMCO Investors, which amassed a stake valued at $39.4 million. Renaissance Technologies, Arrowstreet Capital, and Millennium 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 Empyrean Capital Partners allocated the biggest weight to Telephone & Data Systems, Inc. (NYSE:TDS), around 1.31% of its 13F portfolio. NWI Management is also relatively very bullish on the stock, designating 1 percent of its 13F equity portfolio to TDS.

Judging by the fact that Telephone & Data Systems, Inc. (NYSE:TDS) has witnessed a decline in interest from hedge fund managers, it's safe to say that there exists a select few hedge funds who sold off their positions entirely heading into Q2. It's worth mentioning that Sean Murphy's Game Creek Capital sold off the biggest position of the 750 funds followed by Insider Monkey, totaling close to $2.5 million in stock. Greg Eisner's fund, Engineers Gate Manager, also dumped its stock, about $1 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 4 funds heading into Q2.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Telephone & Data Systems, Inc. (NYSE:TDS) but similarly valued. We will take a look at First Bancorp (NYSE:FBP), Academy Sports and Outdoors, Inc. (NASDAQ:ASO), Telos Corporation (NASDAQ:TLS), Green Dot Corporation (NYSE:GDOT), Aeva Technologies, Inc. (NYSE:AEVA), Trinseo S.A. (NYSE:TSE), and IGM Biosciences, Inc. (NASDAQ:IGMS). This group of stocks' market valuations are similar to TDS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FBP,25,294812,2 ASO,37,409605,11 TLS,15,151370,-13 GDOT,26,513759,-6 AEVA,16,378663,0 TSE,17,51427,1 IGMS,18,759325,0 Average,22,365566,-0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $366 million. That figure was $254 million in TDS's case. Academy Sports and Outdoors, Inc. (NASDAQ:ASO) is the most popular stock in this table. On the other hand Telos Corporation (NASDAQ:TLS) is the least popular one with only 15 bullish hedge fund positions. Telephone & Data Systems, Inc. (NYSE:TDS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TDS is 33.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately TDS wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); TDS investors were disappointed as the stock returned -3.5% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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