Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. 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 Commscope Holding Company Inc (NASDAQ:COMM).
Commscope Holding Company Inc (NASDAQ:COMM) investors should be aware of an increase in hedge fund interest of late. COMM was in 29 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 24 hedge funds in our database with COMM positions at the end of the previous quarter. Our calculations also showed that COMM 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).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 41 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind we’re going to take a gander at the new hedge fund action encompassing Commscope Holding Company Inc (NASDAQ:COMM).
What have hedge funds been doing with Commscope Holding Company Inc (NASDAQ:COMM)?
Heading into the first quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards COMM over the last 18 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 Commscope Holding Company Inc (NASDAQ:COMM) was held by Maverick Capital, which reported holding $274.2 million worth of stock at the end of September. It was followed by FPR Partners with a $274 million position. Other investors bullish on the company included Lyrical Asset Management, Adage Capital Management, and Levin Easterly Partners. In terms of the portfolio weights assigned to each position Hawk Ridge Management allocated the biggest weight to Commscope Holding Company Inc (NASDAQ:COMM), around 6.71% of its 13F portfolio. FPR Partners is also relatively very bullish on the stock, dishing out 5.69 percent of its 13F equity portfolio to COMM.
Consequently, key money managers were breaking ground themselves. Hawk Ridge Management, managed by David Brown, established the most valuable position in Commscope Holding Company Inc (NASDAQ:COMM). Hawk Ridge Management had $41.2 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also initiated a $12.5 million position during the quarter. The following funds were also among the new COMM investors: Chuck Royce’s Royce & Associates, Philippe Laffont’s Coatue Management, and Minhua Zhang’s Weld Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Commscope Holding Company Inc (NASDAQ:COMM) but similarly valued. We will take a look at Spirit Airlines Incorporated (NYSE:SAVE), Olin Corporation (NYSE:OLN), American Assets Trust, Inc (NYSE:AAT), and Moog Inc (NYSE:MOG). This group of stocks’ market valuations match COMM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SAVE | 37 | 329134 | 9 |
| OLN | 33 | 359098 | 5 |
| AAT | 15 | 42601 | 3 |
| MOG | 21 | 102586 | 0 |
| Average | 26.5 | 208355 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $969 million in COMM’s case. Spirit Airlines Incorporated (NYSE:SAVE) is the most popular stock in this table. On the other hand American Assets Trust, Inc (NYSE:AAT) is the least popular one with only 15 bullish hedge fund positions. Commscope Holding Company Inc (NASDAQ:COMM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately COMM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on COMM were disappointed as the stock returned -35.9% 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 many of these stocks already outperformed the market so far this year.
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.
