Hedge Funds Have Never Been This Bullish On Telefonica S.A. (TEF)

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Telefonica S.A. (NYSE:TEF) in this article.

Is Telefonica S.A. (NYSE:TEF) a buy, sell, or hold? Hedge funds are in an optimistic mood. The number of long hedge fund positions went up by 4 in recent months. Our calculations also showed that tef isn’t among the 30 most popular stocks among hedge funds. TEF was in 10 hedge funds’ portfolios at the end of March. There were 6 hedge funds in our database with TEF positions at the end of the previous quarter.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Dmitry Balyasny

We’re going to take a gander at the latest hedge fund action surrounding Telefonica S.A. (NYSE:TEF).

What does smart money think about Telefonica S.A. (NYSE:TEF)?

At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 67% from the fourth quarter of 2018. By comparison, 6 hedge funds held shares or bullish call options in TEF a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with TEF Positions

Among these funds, Arrowstreet Capital held the most valuable stake in Telefonica S.A. (NYSE:TEF), which was worth $30.2 million at the end of the first quarter. On the second spot was Citadel Investment Group which amassed $6.1 million worth of shares. Moreover, Balyasny Asset Management, Stevens Capital Management, and McKinley Capital Management were also bullish on Telefonica S.A. (NYSE:TEF), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most outsized position in Telefonica S.A. (NYSE:TEF). Balyasny Asset Management had $1 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also initiated a $0.8 million position during the quarter. The following funds were also among the new TEF investors: Michael Platt and William Reeves’s BlueCrest Capital Mgmt., Mike Vranos’s Ellington, and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks similar to Telefonica S.A. (NYSE:TEF). We will take a look at Phillips 66 (NYSE:PSX), Intercontinental Exchange Inc (NYSE:ICE), Orange S.A. (NYSE:ORAN), and Workday Inc (NASDAQ:WDAY). This group of stocks’ market valuations are closest to TEF’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PSX 43 1601311 -4
ICE 35 1777571 -6
ORAN 2 1103 0
WDAY 33 1399695 2
Average 28.25 1194920 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $1195 million. That figure was $39 million in TEF’s case. Phillips 66 (NYSE:PSX) is the most popular stock in this table. On the other hand Orange S.A. (NYSE:ORAN) is the least popular one with only 2 bullish hedge fund positions. Telefonica S.A. (NYSE:TEF) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately TEF wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TEF investors were disappointed as the stock returned 1.6% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.

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