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Hedge Funds Are Cautiously Betting On AT&T Inc. (T)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in AT&T Inc. (NYSE:T).

Is AT&T Inc. (NYSE:T) a cheap investment right now? Hedge funds are taking an optimistic view. The number of bullish hedge fund bets increased by 4 recently. Our calculations also showed that T 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the key hedge fund action surrounding AT&T Inc. (NYSE:T).

What have hedge funds been doing with AT&T Inc. (NYSE:T)?

At the end of the third quarter, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the second quarter of 2019. On the other hand, there were a total of 70 hedge funds with a bullish position in T 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.

T_nov2019

More specifically, Adage Capital Management was the largest shareholder of AT&T Inc. (NYSE:T), with a stake worth $333.6 million reported as of the end of September. Trailing Adage Capital Management was Citadel Investment Group, which amassed a stake valued at $332.8 million. AQR Capital Management, D E Shaw, and Levin Easterly Partners 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 One Fin Capital Management allocated the biggest weight to AT&T Inc. (NYSE:T), around 4.78% of its portfolio. Game Creek Capital is also relatively very bullish on the stock, setting aside 4.52 percent of its 13F equity portfolio to T.

As one would reasonably expect, some big names have jumped into AT&T Inc. (NYSE:T) headfirst. Elliott Management, managed by Paul Singer, created the biggest position in AT&T Inc. (NYSE:T). Elliott Management had $118.3 million invested in the company at the end of the quarter. Frank Brosens’s Taconic Capital also initiated a $28.4 million position during the quarter. The other funds with new positions in the stock are Seth Wunder’s Black-and-White Capital, Sander Gerber’s Hudson Bay Capital Management, and David Costen Haley’s HBK Investments.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as AT&T Inc. (NYSE:T) but similarly valued. These stocks are Mastercard Incorporated (NYSE:MA), Bank of America Corporation (NYSE:BAC), The Home Depot, Inc. (NYSE:HD), and Verizon Communications Inc. (NYSE:VZ). All of these stocks’ market caps are similar to T’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MA 114 13206727 15
BAC 95 32049756 1
HD 60 4349926 7
VZ 56 2373783 2
Average 81.25 12995048 6.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 81.25 hedge funds with bullish positions and the average amount invested in these stocks was $12995 million. That figure was $1515 million in T’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand Verizon Communications Inc. (NYSE:VZ) is the least popular one with only 56 bullish hedge fund positions. Compared to these stocks AT&T Inc. (NYSE:T) is even less popular than VZ. Hedge funds dodged a bullet by taking a bearish stance towards T. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately T wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); T investors were disappointed as the stock returned 1.1% during the fourth quarter (through 11/22) 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 so far in Q4.

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

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