Did Hedge Funds Make The Right Call On Telephone & Data Systems, Inc. (TDS) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Telephone & Data Systems, Inc. (NYSE:TDS) and determine whether hedge funds skillfully traded this stock.

Is Telephone & Data Systems, Inc. (NYSE:TDS) a superb investment right now? The smart money was reducing their bets on the stock. The number of long hedge fund positions decreased by 1 lately. Our calculations also showed that TDS isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sander Gerber of Hudson Bay Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a peek at the latest hedge fund action regarding Telephone & Data Systems, Inc. (NYSE:TDS).

How are hedge funds trading Telephone & Data Systems, Inc. (NYSE:TDS)?

At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in TDS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the largest position in Telephone & Data Systems, Inc. (NYSE:TDS). Renaissance Technologies has a $53 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Mario Gabelli of GAMCO Investors, with a $33.7 million position; 0.4% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions include Hari Hariharan’s NWI Management, Israel Englander’s Millennium Management and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Game Creek Capital allocated the biggest weight to Telephone & Data Systems, Inc. (NYSE:TDS), around 1.48% of its 13F portfolio. NWI Management is also relatively very bullish on the stock, setting aside 1.09 percent of its 13F equity portfolio to TDS.

Due to the fact that Telephone & Data Systems, Inc. (NYSE:TDS) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of money managers who were dropping their entire stakes last quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management dropped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising close to $18.3 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund sold off about $2.1 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Telephone & Data Systems, Inc. (NYSE:TDS). We will take a look at Trinity Industries, Inc. (NYSE:TRN), Altair Engineering Inc. (NASDAQ:ALTR), Saia Inc (NASDAQ:SAIA), and Arcosa, Inc. (NYSE:ACA). All of these stocks’ market caps resemble TDS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $266 million. That figure was $150 million in TDS’s case. Trinity Industries, Inc. (NYSE:TRN) is the most popular stock in this table. On the other hand Altair Engineering Inc. (NASDAQ:ALTR) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Telephone & Data Systems, Inc. (NYSE:TDS) is more popular among hedge funds. 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 gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately TDS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TDS were disappointed as the stock returned 18.2% since the end of the first 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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