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Where Do Hedge Funds Stand On Charter Communications, Inc. (CHTR)?

Asma UL Husna
·6 min read

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 Charter Communications, Inc. (NASDAQ:CHTR)? The smart money sentiment can provide an answer to this question.

Charter Communications, Inc. (NASDAQ:CHTR) has experienced a decrease in support from the world's most elite money managers in recent months. Charter Communications, Inc. (NASDAQ:CHTR) was in 88 hedge funds' portfolios at the end of September. The all time high for this statistics is 134. There were 96 hedge funds in our database with CHTR positions at the end of the second quarter. Our calculations also showed that CHTR ranked 28th among the 30 most popular stocks among hedge funds (click for Q3 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Blair Levinsky of Waratah Capital Advisors
Blair Levinsky of Waratah Capital Advisors

Blair Levinsky of Waratah Capital Advisors

At Insider Monkey 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. Tesla's stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. 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. Keeping this in mind let's take a look at the fresh hedge fund action regarding Charter Communications, Inc. (NASDAQ:CHTR).

How have hedgies been trading Charter Communications, Inc. (NASDAQ:CHTR)?

At the end of September, a total of 88 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CHTR over the last 21 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, Berkshire Hathaway was the largest shareholder of Charter Communications, Inc. (NASDAQ:CHTR), with a stake worth $3255 million reported as of the end of September. Trailing Berkshire Hathaway was Egerton Capital Limited, which amassed a stake valued at $1451.2 million. AltaRock Partners, Third Point, and Soroban Capital Partners 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 AltaRock Partners allocated the biggest weight to Charter Communications, Inc. (NASDAQ:CHTR), around 32.26% of its 13F portfolio. Hengistbury Investment Partners is also relatively very bullish on the stock, earmarking 29.15 percent of its 13F equity portfolio to CHTR.

Judging by the fact that Charter Communications, Inc. (NASDAQ:CHTR) has faced falling interest from hedge fund managers, it's easy to see that there lies a certain "tier" of funds who were dropping their full holdings in the third quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the biggest position of the "upper crust" of funds tracked by Insider Monkey, worth about $91.8 million in stock. Eric Bannasch's fund, Cadian Capital, also sold off its stock, about $89.3 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 8 funds in the third quarter.

Let's now take a look at hedge fund activity in other stocks similar to Charter Communications, Inc. (NASDAQ:CHTR). These stocks are Sanofi (NASDAQ:SNY), Lowe's Companies, Inc. (NYSE:LOW), Linde plc (NYSE:LIN), Shopify Inc (NYSE:SHOP), Royal Dutch Shell plc (NYSE:RDS), Philip Morris International Inc. (NYSE:PM), and Honeywell International Inc. (NYSE:HON). 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 SNY,20,1244537,-4 LOW,83,6564097,-6 LIN,60,3554875,8 SHOP,81,7515141,24 RDS,31,853456,-3 PM,50,2639054,-3 HON,41,970923,-9 Average,52.3,3334583,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 52.3 hedge funds with bullish positions and the average amount invested in these stocks was $3335 million. That figure was $11999 million in CHTR's case. Lowe's Companies, Inc. (NYSE:LOW) is the most popular stock in this table. On the other hand Sanofi (NASDAQ:SNY) is the least popular one with only 20 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 66.7. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. Unfortunately CHTR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CHTR were disappointed as the stock returned 3.3% since the end of the third quarter (through 11/23) 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 in 2020.

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

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