We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Telecom Argentina S.A. (NYSE:TEO)? The smart money sentiment can provide an answer to this question.
Is Telecom Argentina S.A. (NYSE:TEO) a buy right now? Money managers are becoming more confident. The number of long hedge fund positions rose by 1 in recent months. Our calculations also showed that TEO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). TEO was in 5 hedge funds' portfolios at the end of December. There were 4 hedge funds in our database with TEO holdings at the end of the previous quarter.
In the eyes of most investors, hedge funds are perceived as unimportant, old investment tools of years past. While there are over 8000 funds with their doors open at the moment, Our experts look at the crème de la crème of this club, approximately 850 funds. It is estimated that this group of investors handle most of all hedge funds' total asset base, and by keeping an eye on their matchless stock picks, Insider Monkey has determined several investment strategies that have historically outpaced the broader indices. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_30614" align="aligncenter" width="400"] Howard Marks of Oaktree Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's view the fresh hedge fund action surrounding Telecom Argentina S.A. (NYSE:TEO).
How have hedgies been trading Telecom Argentina S.A. (NYSE:TEO)?
Heading into the first quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in TEO a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
More specifically, Oaktree Capital Management was the largest shareholder of Telecom Argentina S.A. (NYSE:TEO), with a stake worth $20.8 million reported as of the end of September. Trailing Oaktree Capital Management was Redwood Capital Management, which amassed a stake valued at $15.8 million. Renaissance Technologies, Citadel Investment Group, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Redwood Capital Management allocated the biggest weight to Telecom Argentina S.A. (NYSE:TEO), around 2.17% of its 13F portfolio. Oaktree Capital Management is also relatively very bullish on the stock, earmarking 0.39 percent of its 13F equity portfolio to TEO.
As aggregate interest increased, key money managers were leading the bulls' herd. Millennium Management, managed by Israel Englander, initiated the most outsized position in Telecom Argentina S.A. (NYSE:TEO). Millennium Management had $0.4 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also initiated a $0 million position during the quarter.
Let's now take a look at hedge fund activity in other stocks similar to Telecom Argentina S.A. (NYSE:TEO). We will take a look at Millicom International Cellular S.A. (NASDAQ:TIGO), Azul S.A. (NYSE:AZUL), bluebird bio Inc (NASDAQ:BLUE), and Emcor Group Inc (NYSE:EME). This group of stocks' market caps are similar to TEO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TIGO,7,92775,1 AZUL,11,194860,-1 BLUE,33,369218,16 EME,29,238201,1 Average,20,223764,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $224 million. That figure was $38 million in TEO's case. bluebird bio Inc (NASDAQ:BLUE) is the most popular stock in this table. On the other hand Millicom International Cellular S.A. (NASDAQ:TIGO) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Telecom Argentina S.A. (NYSE:TEO) is even less popular than TIGO. Hedge funds dodged a bullet by taking a bearish stance towards TEO. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately TEO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TEO investors were disappointed as the stock returned -24.1% 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 most of these stocks already outperformed the market so far in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.