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. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC).
Is Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) a cheap investment right now? Investors who are in the know are taking a pessimistic view. The number of bullish hedge fund bets decreased by 2 lately. Our calculations also showed that ERIC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). ERIC was in 18 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 20 hedge funds in our database with ERIC positions at the end of the previous quarter.
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 a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Lee Ainslie of Maverick Capital
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. Now we’re going to take a look at the key hedge fund action surrounding Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC).
How are hedge funds trading Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC)?
Heading into the first quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ERIC over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), which was worth $252.9 million at the end of the third quarter. On the second spot was Cavalry Asset Management which amassed $22.2 million worth of shares. Arrowstreet Capital, Millennium Management, and 13D 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 13D Management allocated the biggest weight to Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), around 4.63% of its 13F portfolio. Cavalry Asset Management is also relatively very bullish on the stock, dishing out 3.22 percent of its 13F equity portfolio to ERIC.
Since Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) has experienced falling interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of fund managers that elected to cut their entire stakes heading into Q4. At the top of the heap, Mike Masters’s Masters Capital Management cut the largest position of the 750 funds watched by Insider Monkey, valued at an estimated $8 million in stock. Richard Mashaal’s fund, Rima Senvest Management, also dumped its stock, about $5.2 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC). These stocks are State Street Corporation (NYSE:STT), The Williams Companies, Inc. (NYSE:WMB), China Unicom (Hong Kong) Limited (NYSE:CHU), and Chunghwa Telecom Co., Ltd (NYSE:CHT). This group of stocks’ market valuations are closest to ERIC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| STT | 45 | 1286711 | 8 |
| WMB | 40 | 958886 | 0 |
| CHU | 11 | 60557 | 3 |
| CHT | 4 | 121280 | -1 |
| Average | 25 | 606859 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $607 million. That figure was $368 million in ERIC’s case. State Street Corporation (NYSE:STT) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 4 bullish hedge fund positions. Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately ERIC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ERIC investors were disappointed as the stock returned -18.9% 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 in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
