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Telefonaktiebolaget LM Ericsson (publ) (ERIC): Are Hedge Funds Right About This Stock?

Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC).

Is Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) a superb investment now? Hedge funds are becoming hopeful. The number of bullish hedge fund bets advanced by 1 lately. Our calculations also showed that ERIC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ERIC was in 20 hedge funds’ portfolios at the end of the third quarter of 2019. There were 19 hedge funds in our database with ERIC holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

To most stock holders, hedge funds are assumed to be unimportant, outdated investment vehicles of the past. While there are more than 8000 funds trading at the moment, We look at the bigwigs of this group, about 750 funds. These money managers handle most of the smart money’s total asset base, and by keeping an eye on their unrivaled stock picks, Insider Monkey has identified a number of investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Ken Griffin

Ken Griffin of Citadel Investment Group

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 fresh hedge fund action surrounding Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC).

How are hedge funds trading Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC)?

At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in ERIC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), which was worth $212.1 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $53 million worth of shares. Citadel Investment Group, Cavalry Asset Management, and 13D Management 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 13D Management allocated the biggest weight to Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), around 5.55% of its 13F portfolio. Cavalry Asset Management is also relatively very bullish on the stock, dishing out 4.31 percent of its 13F equity portfolio to ERIC.

Consequently, some big names were leading the bulls’ herd. Rima Senvest Management, managed by Richard Mashaal, assembled the largest position in Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC). Rima Senvest Management had $5.2 million invested in the company at the end of the quarter. David E. Shaw’s D E Shaw also made a $2.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Joel Greenblatt’s Gotham Asset Management and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s check out hedge fund activity in other stocks similar to Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC). We will take a look at AutoZone, Inc. (NYSE:AZO), FirstEnergy Corp. (NYSE:FE), Verisk Analytics, Inc. (NASDAQ:VRSK), and Discover Financial Services (NYSE:DFS). This group of stocks’ market values are closest to ERIC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AZO 35 1328778 -2
FE 32 2451597 -2
VRSK 30 668085 0
DFS 37 935893 -2
Average 33.5 1346088 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $1346 million. That figure was $353 million in ERIC’s case. Discover Financial Services (NYSE:DFS) is the most popular stock in this table. On the other hand Verisk Analytics, Inc. (NASDAQ:VRSK) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) is even less popular than VRSK. Hedge funds clearly dropped the ball on ERIC 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on ERIC as the stock returned 13.3% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

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

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