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Were Hedge Funds Right About Charter Communications, Inc. (CHTR)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Charter Communications, Inc. (NASDAQ:CHTR) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Charter Communications, Inc. (NASDAQ:CHTR) an attractive investment today? Prominent investors are getting less bullish. The number of long hedge fund positions were cut by 5 recently. Our calculations also showed that CHTR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). CHTR was in 65 hedge funds’ portfolios at the end of December. There were 70 hedge funds in our database with CHTR holdings 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 S&P 500 ETFs by 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.

John Armitage Egerton Capital

John Armitage of Egerton Capital

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. Keeping this in mind we’re going to analyze the latest hedge fund action surrounding Charter Communications, Inc. (NASDAQ:CHTR).

What have hedge funds been doing with Charter Communications, Inc. (NASDAQ:CHTR)?

Heading into the first quarter of 2020, a total of 65 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CHTR over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is CHTR A Good Stock To Buy?

Among these funds, Berkshire Hathaway held the most valuable stake in Charter Communications, Inc. (NASDAQ:CHTR), which was worth $2632.3 million at the end of the third quarter. On the second spot was Egerton Capital Limited which amassed $1117.8 million worth of shares. AltaRock Partners, First Pacific Advisors LLC, and Farallon Capital 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 Hengistbury Investment Partners allocated the biggest weight to Charter Communications, Inc. (NASDAQ:CHTR), around 34.6% of its 13F portfolio. AltaRock Partners is also relatively very bullish on the stock, dishing out 32.45 percent of its 13F equity portfolio to CHTR.

Judging by the fact that Charter Communications, Inc. (NASDAQ:CHTR) has faced falling interest from hedge fund managers, logic holds that there exists a select few funds that slashed their full holdings in the third quarter. At the top of the heap, Doug Silverman and Alexander Klabin’s Senator Investment Group sold off the biggest investment of all the hedgies watched by Insider Monkey, valued at an estimated $138.1 million in stock. David Harding’s fund, Winton Capital Management, also cut its stock, about $65.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 5 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Charter Communications, Inc. (NASDAQ:CHTR) but similarly valued. These stocks are Starbucks Corporation (NASDAQ:SBUX), Diageo plc (NYSE:DEO), Toronto-Dominion Bank (NYSE:TD), and American Express Company (NYSE:AXP). All of these stocks’ market caps match CHTR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SBUX 66 5063838 7
DEO 17 794917 -5
TD 17 312660 0
AXP 58 22554070 3
Average 39.5 7181371 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.5 hedge funds with bullish positions and the average amount invested in these stocks was $7181 million. That figure was $9014 million in CHTR’s case. Starbucks Corporation (NASDAQ:SBUX) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 17 bullish hedge fund positions. Charter Communications, Inc. (NASDAQ:CHTR) is not the most popular stock in this group but hedge fund interest is still above average. 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 lost 1.0% in 2020 through April 20th but still beat the market by 11 percentage points. Hedge funds were also right about betting on CHTR as the stock returned 2.8% in 2020 (through April 20th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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