Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Mobile TeleSystems Public Joint Stock Company (NYSE:MBT).
Is Mobile TeleSystems Public Joint Stock Company (NYSE:MBT) a buy right now? Investors who are in the know are in a bullish mood. The number of bullish hedge fund bets advanced by 6 in recent months. Our calculations also showed that MBT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). MBT was in 14 hedge funds’ portfolios at the end of the third quarter of 2019. There were 8 hedge funds in our database with MBT holdings at the end of the previous quarter.
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Howard Marks of Oaktree Capital Management
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 check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the key hedge fund action surrounding Mobile TeleSystems Public Joint Stock Company (NYSE:MBT).
Hedge fund activity in Mobile TeleSystems Public Joint Stock Company (NYSE:MBT)
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 75% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in MBT a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Mobile TeleSystems Public Joint Stock Company (NYSE:MBT), which was worth $264.1 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $105.6 million worth of shares. Millennium Management, Oaktree Capital Management, and Marshall Wace 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 Renaissance Technologies allocated the biggest weight to Mobile TeleSystems Public Joint Stock Company (NYSE:MBT), around 0.22% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, dishing out 0.12 percent of its 13F equity portfolio to MBT.
Now, some big names were breaking ground themselves. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the biggest position in Mobile TeleSystems Public Joint Stock Company (NYSE:MBT). Marshall Wace had $2 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also initiated a $0.8 million position during the quarter. The following funds were also among the new MBT investors: Matthew Tewksbury’s Stevens Capital Management, Steve Cohen’s Point72 Asset Management, and Michael Gelband’s ExodusPoint Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Mobile TeleSystems Public Joint Stock Company (NYSE:MBT) but similarly valued. These stocks are SAGE Therapeutics Inc (NASDAQ:SAGE), Proofpoint Inc (NASDAQ:PFPT), Gildan Activewear Inc (NYSE:GIL), and IPG Photonics Corporation (NASDAQ:IPGP). This group of stocks’ market values are similar to MBT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SAGE | 29 | 430454 | 4 |
| PFPT | 42 | 636538 | 6 |
| GIL | 19 | 348320 | -5 |
| IPGP | 14 | 103750 | -2 |
| Average | 26 | 379766 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $380 million. That figure was $403 million in MBT’s case. Proofpoint Inc (NASDAQ:PFPT) is the most popular stock in this table. On the other hand IPG Photonics Corporation (NASDAQ:IPGP) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Mobile TeleSystems Public Joint Stock Company (NYSE:MBT) is even less popular than IPGP. Hedge funds clearly dropped the ball on MBT 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on MBT as the stock returned 20.4% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
