World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
CenturyLink, Inc. (NYSE:CTL) investors should pay attention to a decrease in activity from the world's largest hedge funds of late. CTL was in 27 hedge funds' portfolios at the end of the second quarter of 2019. There were 32 hedge funds in our database with CTL holdings at the end of the previous quarter. Our calculations also showed that CTL isn't among the 30 most popular stocks among hedge funds (view the video below). 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 some fund managers who are betting on Dow reaching 40000 in a year, 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. Let's take a look at the recent hedge fund action regarding CenturyLink, Inc. (NYSE:CTL).
Hedge fund activity in CenturyLink, Inc. (NYSE:CTL)
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CTL over the last 16 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Southeastern Asset Management held the most valuable stake in CenturyLink, Inc. (NYSE:CTL), which was worth $880.9 million at the end of the second quarter. On the second spot was Fairfax Financial Holdings which amassed $27.7 million worth of shares. Moreover, Citadel Investment Group, Gotham Asset Management, and PEAK6 Capital Management were also bullish on CenturyLink, Inc. (NYSE:CTL), allocating a large percentage of their portfolios to this stock.
Due to the fact that CenturyLink, Inc. (NYSE:CTL) has witnessed falling interest from the entirety of the hedge funds we track, it's safe to say that there is a sect of fund managers that elected to cut their entire stakes heading into Q3. Intriguingly, Renaissance Technologies said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, valued at about $32.9 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also sold off its stock, about $32.2 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 5 funds heading into Q3.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as CenturyLink, Inc. (NYSE:CTL) but similarly valued. These stocks are Godaddy Inc (NYSE:GDDY), MarketAxess Holdings Inc. (NASDAQ:MKTX), Atmos Energy Corporation (NYSE:ATO), and Kansas City Southern (NYSE:KSU). All of these stocks' market caps are closest to CTL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GDDY,44,2553762,-4 MKTX,18,365542,3 ATO,14,397907,-6 KSU,26,370990,0 Average,25.5,922050,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $922 million. That figure was $1041 million in CTL's case. Godaddy Inc (NYSE:GDDY) is the most popular stock in this table. On the other hand Atmos Energy Corporation (NYSE:ATO) is the least popular one with only 14 bullish hedge fund positions. CenturyLink, Inc. (NYSE:CTL) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on CTL as the stock returned 8.5% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.