Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Is Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC) undervalued? The best stock pickers are actually taking a bearish view. The number of long hedge fund positions were trimmed by 1 lately. There were 11 hedge funds in our database with ERIC positions at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Kemper Corporation (NYSE:KMPR), GCP Applied Technologies Inc(NYSE:GCP), and Covanta Holding Corporation (NYSE:CVA) to gather more data points.
Follow Ericsson L M Telephone Co (NASDAQ:ERIC)
Follow Ericsson L M Telephone Co (NASDAQ:ERIC)
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
With all of this in mind, let’s analyze the recent action regarding Ericsson (ADR) (NASDAQ:ERIC).
Hedge fund activity in Ericsson (ADR) (NASDAQ:ERIC)
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 8% from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards ERIC over the last 5 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.
Of the funds tracked by Insider Monkey, Maverick Capital, led by Lee Ainslie, holds the most valuable position in Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC). Maverick Capital has a $58.3 million position in the stock, comprising 0.7% of its 13F portfolio. The second largest stake is held by Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $55.8 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism comprise Renaissance Technologies, one of the largest hedge funds in the world, Ken Fisher’s Fisher Asset Management and John Overdeck and David Siegel’s Two Sigma Advisors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We already know that not all hedge funds are bullish on the stock and some hedge funds actually cashed in their positions entirely. At the top of the heap, William B. Gray’s Orbis Investment Management cashed in the biggest stake of the 700 funds watched by Insider Monkey, totaling close to $1.2 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $0.8 million worth of shares.
Let’s go over hedge fund activity in other stocks similar to Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC). These stocks are Kemper Corporation (NYSE:KMPR), GCP Applied Technologies Inc(NYSE:GCP), Covanta Holding Corporation (NYSE:CVA), and EXACT Sciences Corporation (NASDAQ:EXAS). This group of stocks’ market valuations match ERIC’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $283 million. That figure was $132 million in ERIC’s case. EXACT Sciences Corporation (NASDAQ:EXAS) is the most popular stock in this table. On the other hand Kemper Corporation (NYSE:KMPR) is the least popular one with only 5 bullish hedge fund positions. Telefonaktiebolaget LM Ericsson (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. In this regard EXAS might be a better candidate to consider taking a long position in.