Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Telefonica S.A. (NYSE:TEF) in this article.
Telefonica S.A. (NYSE:TEF) shareholders have witnessed a decrease in hedge fund sentiment lately. TEF was in 7 hedge funds' portfolios at the end of June. There were 10 hedge funds in our database with TEF holdings at the end of the previous quarter. Our calculations also showed that TEF isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to check out the recent hedge fund action surrounding Telefonica S.A. (NYSE:TEF).
How have hedgies been trading Telefonica S.A. (NYSE:TEF)?
Heading into the third quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -30% from the first quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in TEF a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Arrowstreet Capital held the most valuable stake in Telefonica S.A. (NYSE:TEF), which was worth $38.1 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $3.4 million worth of shares. Moreover, Marshall Wace LLP, Millennium Management, and ExodusPoint Capital were also bullish on Telefonica S.A. (NYSE:TEF), allocating a large percentage of their portfolios to this stock.
Because Telefonica S.A. (NYSE:TEF) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there were a few fund managers who were dropping their positions entirely heading into Q3. Intriguingly, Matthew Tewksbury's Stevens Capital Management cut the biggest stake of all the hedgies monitored by Insider Monkey, worth about $0.8 million in stock. Robert B. Gillam's fund, McKinley Capital Management, also sold off its stock, about $0.3 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 3 funds heading into Q3.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Telefonica S.A. (NYSE:TEF) but similarly valued. These stocks are ABB Ltd (NYSE:ABB), Capital One Financial Corp. (NYSE:COF), The Sherwin-Williams Company (NYSE:SHW), and The Bank of New York Mellon Corporation (NYSE:BK). All of these stocks' market caps are similar to TEF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ABB,13,325021,-2 COF,42,2009156,-2 SHW,40,1429509,-2 BK,33,4940344,-3 Average,32,2176008,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $2176 million. That figure was $44 million in TEF's case. Capital One Financial Corp. (NYSE:COF) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Telefonica S.A. (NYSE:TEF) is even less popular than ABB. Hedge funds dodged a bullet by taking a bearish stance towards TEF. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TEF wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TEF investors were disappointed as the stock returned -8.3% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.