Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves.
Is Shenandoah Telecommunications Company (NASDAQ:SHEN) a buy here? Prominent investors are buying. The number of long hedge fund bets moved up by 4 recently. Our calculations also showed that SHEN isn’t among the 30 most popular stocks among hedge funds (see 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 go over the new hedge fund action regarding Shenandoah Telecommunications Company (NASDAQ:SHEN).
Hedge fund activity in Shenandoah Telecommunications Company (NASDAQ:SHEN)
Heading into the third quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SHEN over the last 16 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in Shenandoah Telecommunications Company (NASDAQ:SHEN) was held by Renaissance Technologies, which reported holding $59.2 million worth of stock at the end of March. It was followed by AQR Capital Management with a $9.5 million position. Other investors bullish on the company included Ailanthus Capital Management, Citadel Investment Group, and Millennium Management.
Consequently, key hedge funds have jumped into Shenandoah Telecommunications Company (NASDAQ:SHEN) headfirst. Ailanthus Capital Management, managed by Genevieve Kahr, assembled the largest position in Shenandoah Telecommunications Company (NASDAQ:SHEN). Ailanthus Capital Management had $8.2 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also initiated a $3.6 million position during the quarter. The other funds with brand new SHEN positions are Charles Davidson and Joseph Jacobs’s Wexford Capital, Michael Gelband’s ExodusPoint Capital, and Minhua Zhang’s Weld Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Shenandoah Telecommunications Company (NASDAQ:SHEN) but similarly valued. We will take a look at NMI Holdings Inc (NASDAQ:NMIH), Tronox Holdings plc (NYSE:TROX), Focus Financial Partners Inc. (NASDAQ:FOCS), and iRhythm Technologies, Inc. (NASDAQ:IRTC). This group of stocks’ market caps are closest to SHEN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NMIH | 19 | 230398 | 4 |
| TROX | 20 | 174636 | -4 |
| FOCS | 9 | 38089 | 4 |
| IRTC | 16 | 295163 | -8 |
| Average | 16 | 184572 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $185 million. That figure was $108 million in SHEN’s case. Tronox Holdings plc (NYSE:TROX) is the most popular stock in this table. On the other hand Focus Financial Partners Inc. (NASDAQ:FOCS) is the least popular one with only 9 bullish hedge fund positions. Shenandoah Telecommunications Company (NASDAQ:SHEN) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SHEN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SHEN were disappointed as the stock returned -17.5% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.
