Were Hedge Funds Right About Betting On Verizon Communications Inc. (VZ)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Verizon Communications Inc. (NYSE:VZ) and determine whether the smart money was really smart about this stock.

Is Verizon Communications Inc. (NYSE:VZ) a buy here? Prominent investors were in a bullish mood in March. The number of long hedge fund bets went up by 3. Our calculations also showed that VZ isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). VZ was in 68 hedge funds’ portfolios at the end of the first quarter of 2020. There were 65 hedge funds in our database with VZ holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the new hedge fund action surrounding Verizon Communications Inc. (NYSE:VZ).

Hedge fund activity in Verizon Communications Inc. (NYSE:VZ)

Heading into the second quarter of 2020, a total of 68 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VZ over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Is VZ A Good Stock To Buy?

More specifically, D E Shaw was the largest shareholder of Verizon Communications Inc. (NYSE:VZ), with a stake worth $563 million reported as of the end of September. Trailing D E Shaw was Renaissance Technologies, which amassed a stake valued at $298.6 million. Adage Capital Management, AQR Capital Management, and Two Sigma Advisors 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 Callodine Capital Management allocated the biggest weight to Verizon Communications Inc. (NYSE:VZ), around 8.42% of its 13F portfolio. Heathbridge Capital Management is also relatively very bullish on the stock, earmarking 6.96 percent of its 13F equity portfolio to VZ.

Now, key hedge funds have jumped into Verizon Communications Inc. (NYSE:VZ) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in Verizon Communications Inc. (NYSE:VZ). Arrowstreet Capital had $212.8 million invested in the company at the end of the quarter. Michael A. Price and Amos Meron’s Empyrean Capital Partners also initiated a $47 million position during the quarter. The following funds were also among the new VZ investors: Brian Ashford-Russell and Tim Woolley’s Polar Capital, Michael O’Keefe’s 12th Street Asset Management, and Andrew Kurita’s Kettle Hill Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Verizon Communications Inc. (NYSE:VZ) but similarly valued. We will take a look at AT&T Inc. (NYSE:T), The Home Depot, Inc. (NYSE:HD), Merck & Co., Inc. (NYSE:MRK), and The Coca-Cola Company (NYSE:KO). All of these stocks’ market caps match VZ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
T 57 1646079 7
HD 87 3585582 -4
MRK 78 5025553 1
KO 55 19901708 4
Average 69.25 7539731 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 69.25 hedge funds with bullish positions and the average amount invested in these stocks was $7540 million. That figure was $2673 million in VZ’s case. The Home Depot, Inc. (NYSE:HD) is the most popular stock in this table. On the other hand The Coca-Cola Company (NYSE:KO) is the least popular one with only 55 bullish hedge fund positions. Verizon Communications Inc. (NYSE:VZ) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately VZ wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); VZ investors were disappointed as the stock returned 2.1% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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