Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Shenandoah Telecommunications Company (NASDAQ:SHEN) was in 14 hedge funds' portfolios at the end of the first quarter of 2019. SHEN investors should be aware of an increase in hedge fund interest recently. There were 11 hedge funds in our database with SHEN holdings at the end of the previous quarter. Our calculations also showed that SHEN isn't among the 30 most popular stocks among hedge funds.
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.
We're going to check out the fresh hedge fund action encompassing Shenandoah Telecommunications Company (NASDAQ:SHEN).
How are hedge funds trading Shenandoah Telecommunications Company (NASDAQ:SHEN)?
At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in SHEN a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Shenandoah Telecommunications Company (NASDAQ:SHEN) was held by Renaissance Technologies, which reported holding $65.2 million worth of stock at the end of March. It was followed by AQR Capital Management with a $9 million position. Other investors bullish on the company included GLG Partners, GAMCO Investors, and Millennium Management.
Consequently, key hedge funds have jumped into Shenandoah Telecommunications Company (NASDAQ:SHEN) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Shenandoah Telecommunications Company (NASDAQ:SHEN). Arrowstreet Capital had $3.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $0.7 million investment in the stock during the quarter. The other funds with brand new SHEN positions are D. E. Shaw's D E Shaw, John Overdeck and David Siegel's Two Sigma Advisors, and Peter Algert and Kevin Coldiron's Algert Coldiron Investors.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Shenandoah Telecommunications Company (NASDAQ:SHEN) but similarly valued. We will take a look at The Cheesecake Factory Incorporated (NASDAQ:CAKE), AMN Healthcare Services Inc (NYSE:AMN), Beacon Roofing Supply, Inc. (NASDAQ:BECN), and Premier Inc (NASDAQ:PINC). All of these stocks' market caps match SHEN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CAKE,25,219156,4 AMN,11,69095,-4 BECN,18,268055,-3 PINC,16,163277,-2 Average,17.5,179896,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $101 million in SHEN's case. The Cheesecake Factory Incorporated (NASDAQ:CAKE) is the most popular stock in this table. On the other hand AMN Healthcare Services Inc (NYSE:AMN) is the least popular one with only 11 bullish hedge fund positions. Shenandoah Telecommunications Company (NASDAQ:SHEN) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately SHEN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SHEN investors were disappointed as the stock returned -7.8% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.