Were Hedge Funds Right About Charter Communications, Inc. (CHTR)?

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Charter Communications, Inc. (NASDAQ:CHTR).

Charter Communications, Inc. (NASDAQ:CHTR) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. Charter Communications, Inc. (NASDAQ:CHTR) was in 74 hedge funds’ portfolios at the end of March. The all time high for this statistic is 134. Our calculations also showed that CHTR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by 115 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 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.

Ricky Sandler of Eminence Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a look at the recent hedge fund action surrounding Charter Communications, Inc. (NASDAQ:CHTR).

Do Hedge Funds Think CHTR Is A Good Stock To Buy Now?

At first quarter’s end, a total of 74 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in CHTR over the last 23 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chris Hohn’s TCI Fund Management has the most valuable position in Charter Communications, Inc. (NASDAQ: CHTR), worth close to $6.3262 billion, amounting to 18.4% of its total 13F portfolio. Coming in second is Warren Buffett of Berkshire Hathaway, with a $3.2168 billion position; 1.2% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism include John Armitage’s Egerton Capital Limited, Mark Massey’s AltaRock Partners and Tim Hurd and Ed Magnus’s BlueSpruce Investments. In terms of the portfolio weights assigned to each position Triple Frond Partners allocated the biggest weight to Charter Communications, Inc. (NASDAQ:CHTR), around 24.3% of its 13F portfolio. AltaRock Partners is also relatively very bullish on the stock, earmarking 24.21 percent of its 13F equity portfolio to CHTR.

Seeing as Charter Communications, Inc. (NASDAQ:CHTR) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of funds who sold off their full holdings heading into Q2. At the top of the heap, Aaron Cowen’s Suvretta Capital Management said goodbye to the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at close to $190.2 million in stock. Steve Cohen’s fund, Point72 Asset Management, also cut its stock, about $42.7 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 16 funds heading into Q2.

Let’s also examine hedge fund activity in other stocks similar to Charter Communications, Inc. (NASDAQ:CHTR). These stocks are JD.Com Inc (NASDAQ:JD), Royal Bank of Canada (NYSE:RY), Sony Corporation (NYSE:SNE), AstraZeneca plc (NYSE:AZN), Starbucks Corporation (NASDAQ:SBUX), Caterpillar Inc. (NYSE:CAT), and Anheuser-Busch InBev SA/NV (NYSE:BUD). All of these stocks’ market caps resemble CHTR’s market cap.

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As you can see these stocks had an average of 40.9 hedge funds with bullish positions and the average amount invested in these stocks was $3658 million. That figure was $16399 million in CHTR’s case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 18 bullish hedge fund positions. Charter Communications, Inc. (NASDAQ:CHTR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CHTR is 54.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.8% in 2021 through August 6th and still beat the market by 6.7 percentage points. Hedge funds were also right about betting on CHTR as the stock returned 24.8% since the end of Q1 (through 8/6) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.

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