Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider TELUS Corporation (NYSE:TU) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is TELUS Corporation (NYSE:TU) worth your attention right now? The best stock pickers are becoming less hopeful. The number of bullish hedge fund positions were trimmed by 7 recently. Our calculations also showed that TU isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). TU was in 13 hedge funds’ portfolios at the end of December. There were 20 hedge funds in our database with TU holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind we’re going to go over the fresh hedge fund action encompassing TELUS Corporation (NYSE:TU).
Hedge fund activity in TELUS Corporation (NYSE:TU)
Heading into the first quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -35% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TU over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in TELUS Corporation (NYSE:TU) was held by Renaissance Technologies, which reported holding $167 million worth of stock at the end of September. It was followed by GLG Partners with a $33.3 million position. Other investors bullish on the company included Heathbridge Capital Management, D E Shaw, and Bridgewater Associates. In terms of the portfolio weights assigned to each position Heathbridge Capital Management allocated the biggest weight to TELUS Corporation (NYSE:TU), around 5.92% of its 13F portfolio. Signition LP is also relatively very bullish on the stock, setting aside 1.68 percent of its 13F equity portfolio to TU.
Due to the fact that TELUS Corporation (NYSE:TU) has experienced declining sentiment from hedge fund managers, it’s safe to say that there exists a select few fund managers that slashed their positions entirely heading into Q4. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest investment of the 750 funds followed by Insider Monkey, valued at about $27.9 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also dropped its stock, about $8 million worth. These moves are interesting, as total hedge fund interest was cut by 7 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as TELUS Corporation (NYSE:TU) but similarly valued. These stocks are Synchrony Financial (NYSE:SYF), Chipotle Mexican Grill, Inc. (NYSE:CMG), Coca-Cola European Partners plc (NYSE:CCEP), and The Kroger Co. (NYSE:KR). This group of stocks’ market valuations resemble TU’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1938 million. That figure was $255 million in TU’s case. Chipotle Mexican Grill, Inc. (NYSE:CMG) is the most popular stock in this table. On the other hand Coca-Cola European Partners plc (NYSE:CCEP) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks TELUS Corporation (NYSE:TU) is even less popular than CCEP. Hedge funds clearly dropped the ball on TU as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on TU as the stock returned -10.1% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.