We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether CenturyLink, Inc. (NYSE:CTL) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
CenturyLink, Inc. (NYSE:CTL) investors should be aware of an increase in hedge fund interest recently. CTL was in 34 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 32 hedge funds in our database with CTL positions at the end of the previous quarter. Our calculations also showed that CTL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below 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.
Mason Hawkins of Southeastern Asset Management
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. Keeping this in mind we’re going to review the new hedge fund action surrounding CenturyLink, Inc. (NYSE:CTL).
How are hedge funds trading CenturyLink, Inc. (NYSE:CTL)?
At the end of the fourth quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CTL over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Southeastern Asset Management held the most valuable stake in CenturyLink, Inc. (NYSE:CTL), which was worth $945.5 million at the end of the third quarter. On the second spot was Fairfax Financial Holdings which amassed $31.2 million worth of shares. Millennium Management, Citadel Investment Group, and Renaissance Technologies 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 Southeastern Asset Management allocated the biggest weight to CenturyLink, Inc. (NYSE:CTL), around 15.76% of its 13F portfolio. Knoll Capital Management is also relatively very bullish on the stock, designating 2.15 percent of its 13F equity portfolio to CTL.
Consequently, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most valuable position in CenturyLink, Inc. (NYSE:CTL). Arrowstreet Capital had $4.5 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also made a $2.3 million investment in the stock during the quarter. The following funds were also among the new CTL investors: David Harding’s Winton Capital Management, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as CenturyLink, Inc. (NYSE:CTL) but similarly valued. These stocks are Quest Diagnostics Incorporated (NYSE:DGX), MarketAxess Holdings Inc. (NASDAQ:MKTX), Liberty Global plc (NASDAQ:LBTYA), and Magellan Midstream Partners, L.P. (NYSE:MMP). All of these stocks’ market caps resemble CTL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DGX | 31 | 433283 | -5 |
| MKTX | 27 | 636917 | 1 |
| LBTYA | 27 | 1199061 | -3 |
| MMP | 16 | 79559 | 1 |
| Average | 25.25 | 587205 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $587 million. That figure was $1144 million in CTL’s case. Quest Diagnostics Incorporated (NYSE:DGX) is the most popular stock in this table. On the other hand Magellan Midstream Partners, L.P. (NYSE:MMP) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks CenturyLink, Inc. (NYSE:CTL) is more popular among hedge funds. 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 22.3% in 2020 through March 16th but still managed to beat the market by 3.2 percentage points. Hedge funds were also right about betting on CTL, though not to the same extent, as the stock returned -24.5% during the first quarter (through March 16th) and outperformed the market as well.
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.
