We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Comtech Telecommunications Corp. (NASDAQ:CMTL).
Comtech Telecommunications Corp. (NASDAQ:CMTL) was in 19 hedge funds’ portfolios at the end of the third quarter of 2019. CMTL investors should pay attention to an increase in hedge fund interest of late. There were 17 hedge funds in our database with CMTL holdings at the end of the previous quarter. Our calculations also showed that CMTL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 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 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.
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. We’re going to go over the latest hedge fund action surrounding Comtech Telecommunications Corp. (NASDAQ:CMTL).
Hedge fund activity in Comtech Telecommunications Corp. (NASDAQ:CMTL)
Heading into the fourth quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the second quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in CMTL a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Huber Capital Management was the largest shareholder of Comtech Telecommunications Corp. (NASDAQ:CMTL), with a stake worth $30.8 million reported as of the end of September. Trailing Huber Capital Management was Royce & Associates, which amassed a stake valued at $18.5 million. Renaissance Technologies, Millennium Management, and Marshall Wace 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 Huber Capital Management allocated the biggest weight to Comtech Telecommunications Corp. (NASDAQ:CMTL), around 3.81% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, setting aside 0.56 percent of its 13F equity portfolio to CMTL.
Now, specific money managers were leading the bulls’ herd. ExodusPoint Capital, managed by Michael Gelband, initiated the largest position in Comtech Telecommunications Corp. (NASDAQ:CMTL). ExodusPoint Capital had $0.8 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new CMTL investors: Ken Griffin’s Citadel Investment Group and Thomas Bailard’s Bailard Inc.
Let’s now take a look at hedge fund activity in other stocks similar to Comtech Telecommunications Corp. (NASDAQ:CMTL). These stocks are Cass Information Systems, Inc. (NASDAQ:CASS), Horizon Bancorp, Inc. (NASDAQ:HBNC), MBIA Inc. (NYSE:MBI), and Pitney Bowes Inc. (NYSE:PBI). This group of stocks’ market values are closest to CMTL’s market value.
|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 15 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $100 million in CMTL’s case. MBIA Inc. (NYSE:MBI) is the most popular stock in this table. On the other hand Cass Information Systems, Inc. (NASDAQ:CASS) is the least popular one with only 9 bullish hedge fund positions. Comtech Telecommunications Corp. (NASDAQ:CMTL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CMTL as the stock returned 16.7% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.