The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Verizon Communications Inc. (NYSE:VZ).
Is Verizon Communications Inc. (NYSE:VZ) a cheap investment today? The smart money is turning bullish. The number of long hedge fund positions went up by 3 in recent months. Our calculations also showed that VZ 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.
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 44 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.
Cliff Asness of AQR Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. Also, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the new hedge fund action encompassing Verizon Communications Inc. (NYSE:VZ).
How are hedge funds trading Verizon Communications Inc. (NYSE:VZ)?
At Q1’s end, a total of 68 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. By comparison, 52 hedge funds held shares or bullish call options in VZ a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Verizon Communications Inc. (NYSE:VZ), which was worth $563 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $298.6 million worth of shares. Adage Capital Management, AQR Capital Management, and Two Sigma Advisors 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 Callodine Capital Management allocated the biggest weight to Verizon Communications Inc. (NYSE:VZ), around 8.42% of its 13F portfolio. Heathbridge Capital Management is also relatively very bullish on the stock, setting aside 6.96 percent of its 13F equity portfolio to VZ.
As industrywide interest jumped, key money managers have jumped into Verizon Communications Inc. (NYSE:VZ) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in Verizon Communications Inc. (NYSE:VZ). Arrowstreet Capital had $212.8 million invested in the company at the end of the quarter. Michael A. Price and Amos Meron’s Empyrean Capital Partners also made a $47 million investment in the stock during the quarter. The other funds with new positions in the stock are Brian Ashford-Russell and Tim Woolley’s Polar Capital, Michael O’Keefe’s 12th Street Asset Management, and Andrew Kurita’s Kettle Hill Capital Management.
Let’s check out hedge fund activity in other stocks similar to Verizon Communications Inc. (NYSE:VZ). We will take a look at AT&T Inc. (NYSE:T), The Home Depot, Inc. (NYSE:HD), Merck & Co., Inc. (NYSE:MRK), and The Coca-Cola Company (NYSE:KO). This group of stocks’ market values are similar to VZ’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| T | 57 | 1646079 | 7 |
| HD | 87 | 3585582 | -4 |
| MRK | 78 | 5025553 | 1 |
| KO | 55 | 19901708 | 4 |
| Average | 69.25 | 7539731 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 69.25 hedge funds with bullish positions and the average amount invested in these stocks was $7540 million. That figure was $2673 million in VZ’s case. The Home Depot, Inc. (NYSE:HD) is the most popular stock in this table. On the other hand The Coca-Cola Company (NYSE:KO) is the least popular one with only 55 bullish hedge fund positions. Verizon Communications Inc. (NYSE:VZ) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 7.9% in 2020 through May 22nd and surpassed the market by 15.6 percentage points. Unfortunately VZ wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); VZ investors were disappointed as the stock returned 1.8% during the second 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.
