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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Telefonica S.A. (NYSE:TEF)? The smart money sentiment can provide an answer to this question.
Telefonica S.A. (NYSE:TEF) has seen an increase in enthusiasm from smart money recently. TEF was in 9 hedge funds’ portfolios at the end of December. There were 5 hedge funds in our database with TEF holdings at the end of the previous quarter. Our calculations also showed that TEF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
At the moment there are numerous signals investors can use to assess their stock investments. A pair of the most under-the-radar signals are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the elite investment managers can trounce the S&P 500 by a very impressive amount (see the details here).
Steven Cohen of Point72 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 let’s take a look at the new hedge fund action regarding Telefonica S.A. (NYSE:TEF).
How have hedgies been trading Telefonica S.A. (NYSE:TEF)?
At the end of the fourth quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 80% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TEF over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the largest position in Telefonica S.A. (NYSE:TEF), worth close to $31.8 million, comprising 0.1% of its total 13F portfolio. The second most bullish fund manager is Steve Cohen of Point72 Asset Management, with a $1.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions include Ken Griffin’s Citadel Investment Group, John Overdeck and David Siegel’s Two Sigma Advisors and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Arrowstreet Capital allocated the biggest weight to Telefonica S.A. (NYSE:TEF), around 0.07% of its 13F portfolio. Ellington is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to TEF.
As industrywide interest jumped, specific money managers were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, established the biggest position in Telefonica S.A. (NYSE:TEF). Point72 Asset Management had $1.6 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new TEF investors: Mike Vranos’s Ellington, Matthew Tewksbury’s Stevens Capital Management, and Ken Fisher’s Fisher Asset Management.
Let’s also examine hedge fund activity in other stocks similar to Telefonica S.A. (NYSE:TEF). These stocks are Thomson Reuters Corporation (NYSE:TRI), Newmont Corporation (NYSE:NEM), NXP Semiconductors NV (NASDAQ:NXPI), and The Travelers Companies, Inc. (NYSE:TRV). All of these stocks’ market caps are similar to TEF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRI | 21 | 343733 | 0 |
| NEM | 34 | 990094 | -10 |
| NXPI | 80 | 3769335 | 18 |
| TRV | 39 | 906120 | 1 |
| Average | 43.5 | 1502321 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 43.5 hedge funds with bullish positions and the average amount invested in these stocks was $1502 million. That figure was $36 million in TEF’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Thomson Reuters Corporation (NYSE:TRI) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Telefonica S.A. (NYSE:TEF) is even less popular than TRI. Hedge funds dodged a bullet by taking a bearish stance towards TEF. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately TEF wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TEF investors were disappointed as the stock returned -29.8% 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 most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
