"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards PLDT Inc. (NYSE:PHI).
PLDT Inc. (NYSE:PHI) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Grand Canyon Education Inc (NASDAQ:LOPE), Micro Focus Intl PLC (NYSE:MFGP), and H&R Block, Inc. (NYSE:HRB) to gather more data points. Our calculations also showed that PHI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
[caption id="attachment_746893" align="aligncenter" width="1613"] Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's analyze the new hedge fund action regarding PLDT Inc.e (NYSE:PHI).
What does smart money think about PLDT Inc. (NYSE:PHI)?
At Q3's end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PHI over the last 17 quarters. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, founded by Jim Simons, holds the largest position in PLDT Inc. (NYSE:PHI). Renaissance Technologies has a $69.8 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is John Overdeck and David Siegel of Two Sigma Advisors, with a $0.7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers with similar optimism comprise David E. Shaw's D E Shaw, Ken Griffin's Citadel Investment Group and Paul Marshall and Ian Wace's Marshall Wace. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to PLDT Inc. (NYSE:PHI), around 0.06% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, dishing out 0.0016 percent of its 13F equity portfolio to PHI.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was D E Shaw).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as PLDT Inc. (NYSE:PHI) but similarly valued. We will take a look at Grand Canyon Education Inc (NASDAQ:LOPE), Micro Focus Intl PLC (NYSE:MFGP), H&R Block, Inc. (NYSE:HRB), and Tetra Tech, Inc. (NASDAQ:TTEK). All of these stocks' market caps match PHI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LOPE,23,107964,0 MFGP,6,21086,0 HRB,21,321850,-4 TTEK,21,123653,-1 Average,17.75,143638,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $144 million. That figure was $72 million in PHI's case. Grand Canyon Education Inc (NASDAQ:LOPE) is the most popular stock in this table. On the other hand Micro Focus Intl PLC (NYSE:MFGP) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks PLDT Inc. (NYSE:PHI) is even less popular than MFGP. Hedge funds dodged a bullet by taking a bearish stance towards PHI. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PHI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PHI investors were disappointed as the stock returned -1.5% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.