Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK).
Hedge fund interest in Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare TLK to other stocks including Ingersoll-Rand Plc (NYSE:IR), Paychex, Inc. (NASDAQ:PAYX), and MPLX LP (NYSE:MPLX) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Fisher of Fisher Asset 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 glance at the recent hedge fund action surrounding Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK).
How are hedge funds trading Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. By comparison, 4 hedge funds held shares or bullish call options in TLK a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), with a stake worth $138.9 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $10.2 million. Millennium Management, Sensato Capital Management, and Fisher Asset Management 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 Sensato Capital Management allocated the biggest weight to Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), around 0.48% of its 13F portfolio. HighVista Strategies is also relatively very bullish on the stock, setting aside 0.15 percent of its 13F equity portfolio to TLK.
Judging by the fact that Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) has witnessed a decline in interest from the smart money, logic holds that there lies a certain “tier” of hedgies that slashed their positions entirely by the end of the third quarter. At the top of the heap, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners cut the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling about $2.4 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $0.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks similar to Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK). These stocks are Ingersoll-Rand Plc (NYSE:IR), Paychex, Inc. (NASDAQ:PAYX), MPLX LP (NYSE:MPLX), and Brown-Forman Corporation (NYSE:BF). This group of stocks’ market valuations resemble TLK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IR | 40 | 1724549 | 0 |
| PAYX | 28 | 871198 | -6 |
| MPLX | 13 | 486509 | 2 |
| BF | 21 | 632843 | -7 |
| Average | 25.5 | 928775 | -2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $929 million. That figure was $153 million in TLK’s case. Ingersoll-Rand Plc (NYSE:IR) is the most popular stock in this table. On the other hand MPLX LP (NYSE:MPLX) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is even less popular than MPLX. Hedge funds dodged a bullet by taking a bearish stance towards TLK. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TLK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TLK investors were disappointed as the stock returned -8.1% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
