How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Telefonica Brasil SA (NYSE:VIV).
Telefonica Brasil SA (NYSE:VIV) was in 13 hedge funds’ portfolios at the end of September. VIV shareholders have witnessed an increase in hedge fund interest of late. There were 12 hedge funds in our database with VIV holdings at the end of the previous quarter. Our calculations also showed that VIV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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.
Cliff Asness of AQR 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 analyze the key hedge fund action surrounding Telefonica Brasil SA (NYSE:VIV).
How are hedge funds trading Telefonica Brasil SA (NYSE:VIV)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards VIV over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Moerus Capital Management was the largest shareholder of Telefonica Brasil SA (NYSE:VIV), with a stake worth $36.7 million reported as of the end of September. Trailing Moerus Capital Management was Arrowstreet Capital, which amassed a stake valued at $19.1 million. Renaissance Technologies, Millennium Management, and AQR Capital 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 Moerus Capital Management allocated the biggest weight to Telefonica Brasil SA (NYSE:VIV), around 12.49% of its 13F portfolio. Teewinot Capital Advisers is also relatively very bullish on the stock, earmarking 0.81 percent of its 13F equity portfolio to VIV.
Consequently, some big names have been driving this bullishness. Two Sigma Advisors, managed by John Overdeck and David Siegel, initiated the most valuable position in Telefonica Brasil SA (NYSE:VIV). Two Sigma Advisors had $0.5 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $0.1 million position during the quarter.
Let’s also examine hedge fund activity in other stocks similar to Telefonica Brasil SA (NYSE:VIV). We will take a look at Interactive Brokers Group, Inc. (NASDAQ:IBKR), Microchip Technology Incorporated (NASDAQ:MCHP), State Street Corporation (NYSE:STT), and Cheniere Energy Partners LP (NYSE:CQP). This group of stocks’ market valuations match VIV’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IBKR | 24 | 1030551 | 0 |
| MCHP | 29 | 1167981 | 3 |
| STT | 33 | 1207053 | -3 |
| CQP | 5 | 11230 | -2 |
| Average | 22.75 | 854204 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $854 million. That figure was $92 million in VIV’s case. State Street Corporation (NYSE:STT) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 5 bullish hedge fund positions. Telefonica Brasil SA (NYSE:VIV) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately VIV wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VIV investors were disappointed as the stock returned -0.2% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
