There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Telefonica S.A. (NYSE:TEF).
Is Telefonica S.A. (NYSE:TEF) the right investment to pursue these days? The smart money is becoming more confident. The number of bullish hedge fund positions rose by 1 in recent months. Our calculations also showed that TEF isn’t among the 30 most popular stocks among hedge funds.
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’ 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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s review the recent hedge fund action encompassing Telefonica S.A. (NYSE:TEF).
Hedge fund activity in Telefonica S.A. (NYSE:TEF)
Heading into the first quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in TEF over the last 14 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in Telefonica S.A. (NYSE:TEF) was held by Arrowstreet Capital, which reported holding $45.8 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $1.3 million position. Other investors bullish on the company included Two Sigma Advisors, PEAK6 Capital Management, and McKinley Capital Management.
As one would reasonably expect, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Telefonica S.A. (NYSE:TEF). Arrowstreet Capital had $45.8 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $0.6 million investment in the stock during the quarter. The following funds were also among the new TEF investors: Robert B. Gillam’s McKinley Capital Management and Paul Tudor Jones’s Tudor Investment Corp.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Telefonica S.A. (NYSE:TEF) but similarly valued. We will take a look at Raytheon Company (NYSE:RTN), Exelon Corporation (NYSE:EXC), Orange S.A. (NYSE:ORAN), and Intercontinental Exchange Inc (NYSE:ICE). All of these stocks’ market caps are similar to TEF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RTN | 38 | 1601576 | 3 |
| EXC | 33 | 2059393 | 0 |
| ORAN | 2 | 398 | 1 |
| ICE | 41 | 2692581 | 5 |
| Average | 28.5 | 1588487 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $1588 million. That figure was $48 million in TEF’s case. Intercontinental Exchange Inc (NYSE:ICE) is the most popular stock in this table. On the other hand Orange S.A. (NYSE:ORAN) is the least popular one with only 2 bullish hedge fund positions. Telefonica S.A. (NYSE:TEF) 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately TEF wasn’t in this group. Hedge funds that bet on TEF were disappointed as the stock returned 6% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
