We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Sprint Corporation (NYSE:S).
Is Sprint Corporation (NYSE:S) the right investment to pursue these days? Prominent investors are in a bearish mood. The number of bullish hedge fund bets fell by 2 lately. Our calculations also showed that S 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_25305" align="aligncenter" width="450"] John Paulson of Paulson & Co[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's review the new hedge fund action surrounding Sprint Corporation (NYSE:S).
How have hedgies been trading Sprint Corporation (NYSE:S)?
At Q3's end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in S a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in Sprint Corporation (NYSE:S) was held by Renaissance Technologies, which reported holding $520.5 million worth of stock at the end of September. It was followed by Magnetar Capital with a $120.3 million position. Other investors bullish on the company included Paulson & Co, Alpine Associates, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Magnetar Capital allocated the biggest weight to Sprint Corporation (NYSE:S), around 3.06% of its 13F portfolio. HighVista Strategies is also relatively very bullish on the stock, setting aside 2.78 percent of its 13F equity portfolio to S.
Due to the fact that Sprint Corporation (NYSE:S) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of fund managers who sold off their entire stakes heading into Q4. At the top of the heap, Farallon Capital said goodbye to the largest investment of the 750 funds watched by Insider Monkey, comprising an estimated $70.1 million in stock, and Michel Massoud's Melqart Asset Management was right behind this move, as the fund sold off about $14.6 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to Sprint Corporation (NYSE:S). We will take a look at Lululemon Athletica inc. (NASDAQ:LULU), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), FleetCor Technologies, Inc. (NYSE:FLT), and Realty Income Corporation (NYSE:O). This group of stocks' market caps match S's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LULU,46,1527406,-3 WLTW,35,1905841,2 FLT,42,2138351,2 O,16,177826,-6 Average,34.75,1437356,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $1437 million. That figure was $886 million in S's case. Lululemon Athletica inc. (NASDAQ:LULU) is the most popular stock in this table. On the other hand Realty Income Corporation (NYSE:O) is the least popular one with only 16 bullish hedge fund positions. Sprint Corporation (NYSE:S) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately S wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); S investors were disappointed as the stock returned -4.1% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.