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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) investors should be aware of a decrease in hedge fund interest in recent months. 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 holdings at the end of the previous quarter. 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 at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a 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, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s take a peek at the fresh hedge fund action regarding Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC).
What does smart money think about 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 held long positions in this stock, a change of -10% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in ERIC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
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, setting aside 3.22 percent of its 13F equity portfolio to ERIC.
Because Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) has experienced declining sentiment from the smart money, it’s safe to say that there was a specific group of hedgies that slashed their positions entirely in the third quarter. Intriguingly, Mike Masters’s Masters Capital Management dropped the largest position of all the hedgies followed by Insider Monkey, totaling about $8 million in stock. Richard Mashaal’s fund, Rima Senvest Management, also cut its stock, about $5.2 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 2 funds in the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) but similarly valued. 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 caps resemble ERIC’s market cap.
| 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on ERIC, though not to the same extent, as the stock returned -4.3% during the same time period and outperformed the market.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
