The market has been volatile in the fourth quarter as the Federal Reserve continued its rate hikes to normalize the interest rates. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, and the funds' movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of Telephone & Data Systems, Inc. (NYSE:TDS) and find out how it is affected by hedge funds' moves.
Telephone & Data Systems, Inc. (NYSE:TDS) has experienced an increase in hedge fund interest of late. TDS was in 22 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 20 hedge funds in our database with TDS holdings at the end of the previous quarter. Our calculations also showed that TDS 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a look at the latest hedge fund action encompassing Telephone & Data Systems, Inc. (NYSE:TDS).
How have hedgies been trading Telephone & Data Systems, Inc. (NYSE:TDS)?
Heading into the first quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in TDS 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 Telephone & Data Systems, Inc. (NYSE:TDS) was held by Renaissance Technologies, which reported holding $138 million worth of stock at the end of September. It was followed by GAMCO Investors with a $83.3 million position. Other investors bullish on the company included GLG Partners, Millennium Management, and Winton Capital Management.
Consequently, key hedge funds were leading the bulls' herd. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the largest position in Telephone & Data Systems, Inc. (NYSE:TDS). Balyasny Asset Management had $1.4 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also initiated a $0.9 million position during the quarter. The other funds with brand new TDS positions are Matthew Tewksbury's Stevens Capital Management, Ken Griffin's Citadel Investment Group, and Hoon Kim's Quantinno Capital.
Let's also examine hedge fund activity in other stocks similar to Telephone & Data Systems, Inc. (NYSE:TDS). We will take a look at Shell Midstream Partners LP (NYSE:SHLX), Alteryx, Inc. (NYSE:AYX), Equity Commonwealth (NYSE:EQC), and First Industrial Realty Trust, Inc. (NYSE:FR). All of these stocks' market caps are similar to TDS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHLX,8,25882,2 AYX,29,526112,3 EQC,17,212173,0 FR,18,312949,2 Average,18,269279,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $269 million. That figure was $434 million in TDS's case. Alteryx, Inc. (NYSE:AYX) is the most popular stock in this table. On the other hand Shell Midstream Partners LP (NYSE:SHLX) is the least popular one with only 8 bullish hedge fund positions. Telephone & Data Systems, Inc. (NYSE:TDS) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately TDS wasn't nearly as popular as these 15 stock and hedge funds that were betting on TDS were disappointed as the stock returned 0.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.