With the fourth-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Telecom Argentina S.A. (NYSE:TEO).
Telecom Argentina S.A. (NYSE:TEO) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds' portfolios at the end of December. At the end of this article we will also compare TEO to other stocks including HD Supply Holdings Inc (NASDAQ:HDS), Cognex Corporation (NASDAQ:CGNX), and Ares Capital Corporation (NASDAQ:ARCC) to get a better sense of its popularity.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's analyze the new hedge fund action regarding Telecom Argentina S.A. (NYSE:TEO).
Hedge fund activity in Telecom Argentina S.A. (NYSE:TEO)
Heading into the first quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in TEO over the last 14 quarters. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Key Square Capital Management, managed by Scott Bessent, holds the biggest position in Telecom Argentina S.A. (NYSE:TEO). Key Square Capital Management has a $35.1 million position in the stock, comprising 13.4% of its 13F portfolio. Sitting at the No. 2 spot is Jonathan Kolatch of Redwood Capital Management, with a $19.9 million position; 1.7% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism encompass Howard Marks's Oaktree Capital Management, Kevin D. Eng's Columbus Hill Capital Management and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.
Judging by the fact that Telecom Argentina S.A. (NYSE:TEO) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of funds that slashed their entire stakes in the third quarter. Interestingly, Ken Griffin's Citadel Investment Group said goodbye to the largest stake of the 700 funds watched by Insider Monkey, worth about $0.3 million in call options, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund cut about $0.2 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Telecom Argentina S.A. (NYSE:TEO). We will take a look at HD Supply Holdings Inc (NASDAQ:HDS), Cognex Corporation (NASDAQ:CGNX), Ares Capital Corporation (NASDAQ:ARCC), and News Corp (NASDAQ:NWSA). This group of stocks' market caps resemble TEO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HDS,31,1053143,-7 CGNX,13,261357,0 ARCC,26,236492,1 NWSA,23,559183,-7 Average,23.25,527544,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $528 million. That figure was $85 million in TEO's case. HD Supply Holdings Inc (NASDAQ:HDS) is the most popular stock in this table. On the other hand Cognex Corporation (NASDAQ:CGNX) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Telecom Argentina S.A. (NYSE:TEO) is even less popular than CGNX. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately TEO wasn't in this group. Hedge funds that bet on TEO were disappointed as the stock lost 7.5% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.