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Were Hedge Funds Right About Charter Communications, Inc. (CHTR)?

Abigail Fisher
·6 min read

In this article we are going to use hedge fund sentiment as a tool and determine whether Charter Communications, Inc. (NASDAQ:CHTR) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Charter Communications, Inc. (NASDAQ:CHTR) a splendid investment right now? Hedge funds were cutting their exposure. The number of bullish hedge fund positions fell by 8 recently. Charter Communications, Inc. (NASDAQ:CHTR) was in 96 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 134. Our calculations also showed that CHTR currently ranks 21st among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Armitage Egerton Capital
John Armitage Egerton Capital

John Armitage of Egerton Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let's take a glance at the fresh hedge fund action surrounding Charter Communications, Inc. (NASDAQ:CHTR).

What have hedge funds been doing with Charter Communications, Inc. (NASDAQ:CHTR)?

At Q2's end, a total of 96 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in CHTR over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Charter Communications, Inc. (NASDAQ:CHTR) was held by Berkshire Hathaway, which reported holding $2659.1 million worth of stock at the end of September. It was followed by Egerton Capital Limited with a $1130.7 million position. Other investors bullish on the company included AltaRock Partners, Renaissance Technologies, and BlueSpruce Investments. In terms of the portfolio weights assigned to each position Hengistbury Investment Partners allocated the biggest weight to Charter Communications, Inc. (NASDAQ:CHTR), around 31.45% of its 13F portfolio. AltaRock Partners is also relatively very bullish on the stock, designating 30.1 percent of its 13F equity portfolio to CHTR.

Since Charter Communications, Inc. (NASDAQ:CHTR) has faced bearish sentiment from hedge fund managers, logic holds that there exists a select few hedge funds that elected to cut their full holdings last quarter. Interestingly, Doug Silverman and Alexander Klabin's Senator Investment Group dropped the largest investment of all the hedgies followed by Insider Monkey, totaling an estimated $61.1 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dumped about $58.9 million worth. These moves are interesting, as aggregate hedge fund interest fell by 8 funds last quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Charter Communications, Inc. (NASDAQ:CHTR) but similarly valued. These stocks are Wells Fargo & Company (NYSE:WFC), BHP Group (NYSE:BBL), The Boeing Company (NYSE:BA), PetroChina Company Limited (NYSE:PTR), Pinduoduo Inc. (NASDAQ:PDD), QUALCOMM, Incorporated (NASDAQ:QCOM), and Lockheed Martin Corporation (NYSE:LMT). This group of stocks' market valuations are similar to CHTR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WFC,86,10344809,10 BBL,22,919411,1 BA,39,1280437,-15 PTR,6,63660,-1 PDD,30,4149572,2 QCOM,74,2202796,14 LMT,53,1553657,-2 Average,44.3,2930620,1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.3 hedge funds with bullish positions and the average amount invested in these stocks was $2931 million. That figure was $11228 million in CHTR's case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Charter Communications, Inc. (NASDAQ:CHTR) is more popular among hedge funds. Our overall hedge fund sentiment score for CHTR is 68.5 (out of 100). Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on CHTR as the stock returned 24.3% since the end of June (through 10/16) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.

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