We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
AT&T Inc. (NYSE:T) shareholders have witnessed an increase in hedge fund interest of late. Our calculations also showed that T isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to check out the fresh hedge fund action encompassing AT&T Inc. (NYSE:T).
How have hedgies been trading AT&T Inc. (NYSE:T)?
At Q3’s end, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards T over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Adage Capital Management held the most valuable stake in AT&T Inc. (NYSE:T), which was worth $333.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $332.8 million worth of shares. AQR Capital Management, D E Shaw, and Levin Easterly Partners 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 One Fin Capital Management allocated the biggest weight to AT&T Inc. (NYSE:T), around 4.78% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, earmarking 4.52 percent of its 13F equity portfolio to T.
As industrywide interest jumped, key money managers were leading the bulls’ herd. Elliott Management, managed by Paul Singer, established the most valuable position in AT&T Inc. (NYSE:T). Elliott Management had $118.3 million invested in the company at the end of the quarter. Frank Brosens’s Taconic Capital also initiated a $28.4 million position during the quarter. The following funds were also among the new T investors: Seth Wunder’s Black-and-White Capital, Sander Gerber’s Hudson Bay Capital Management, and David Costen Haley’s HBK Investments.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as AT&T Inc. (NYSE:T) but similarly valued. We will take a look at Mastercard Incorporated (NYSE:MA), Bank of America Corporation (NYSE:BAC), The Home Depot, Inc. (NYSE:HD), and Verizon Communications Inc. (NYSE:VZ). This group of stocks’ market valuations are closest to T’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MA | 114 | 13206727 | 15 |
| BAC | 95 | 32049756 | 1 |
| HD | 60 | 4349926 | 7 |
| VZ | 56 | 2373783 | 2 |
| Average | 81.25 | 12995048 | 6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 81.25 hedge funds with bullish positions and the average amount invested in these stocks was $12995 million. That figure was $1515 million in T’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand Verizon Communications Inc. (NYSE:VZ) is the least popular one with only 56 bullish hedge fund positions. Compared to these stocks AT&T Inc. (NYSE:T) is even less popular than VZ. Hedge funds clearly dropped the ball on T as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on T as the stock returned 45.5% in 2019 (through December 23rd) and outperformed the market by an even larger margin.
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.
