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

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. 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 Charter Communications, Inc. (NASDAQ:CHTR) and determine whether the smart money was really smart about this stock.

Is Charter Communications, Inc. (NASDAQ:CHTR) worth your attention right now? The smart money was taking a bullish view at the end of Q1. The number of bullish hedge fund positions inched up by 39 in recent months. Our calculations also showed that CHTR ranked 18th 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).

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Third Point 2014 Q3 Investor Letter

Dan Loeb of Third Point

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. With all of this in mind we’re going to go over the fresh hedge fund action encompassing Charter Communications, Inc. (NASDAQ:CHTR).

Hedge fund activity in Charter Communications, Inc. (NASDAQ:CHTR)

At Q1’s end, a total of 104 of the hedge funds tracked by Insider Monkey were long this stock, a change of 60% from one quarter earlier. On the other hand, there were a total of 67 hedge funds with a bullish position in CHTR a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the number one position in Charter Communications, Inc. (NASDAQ:CHTR), worth close to $2.3677 billion, accounting for 1.3% of its total 13F portfolio. The second largest stake is held by John Armitage of Egerton Capital Limited, with a $912.5 million position; the fund has 9.4% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass Ken Griffin’s Citadel Investment Group, Mark Massey’s AltaRock Partners and Farallon Capital. In terms of the portfolio weights assigned to each position Hengistbury Investment Partners allocated the biggest weight to Charter Communications, Inc. (NASDAQ:CHTR), around 44% of its 13F portfolio. AltaRock Partners is also relatively very bullish on the stock, setting aside 30.35 percent of its 13F equity portfolio to CHTR.

As industrywide interest jumped, key hedge funds were breaking ground themselves. BlueSpruce Investments, managed by Tim Hurd and Ed Magnus, assembled the largest position in Charter Communications, Inc. (NASDAQ:CHTR). BlueSpruce Investments had $235.1 million invested in the company at the end of the quarter. Aaron Cowen’s Suvretta Capital Management also made a $161.8 million investment in the stock during the quarter. The following funds were also among the new CHTR investors: John Smith Clark’s Southpoint Capital Advisors, Dan Loeb’s Third Point, and Munir Javeri’s 3G Sahana Capital Management.

Let’s check out hedge fund activity in other stocks similar to Charter Communications, Inc. (NASDAQ:CHTR). These stocks are International Business Machines Corp. (NYSE:IBM), Union Pacific Corporation (NYSE:UNP), Tesla Inc. (NASDAQ:TSLA), and Danaher Corporation (NYSE:DHR). This group of stocks’ market values are closest to CHTR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IBM 41 902956 -9
UNP 63 3442520 -2
TSLA 61 2124859 10
DHR 63 3193618 2
Average 57 2415988 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 57 hedge funds with bullish positions and the average amount invested in these stocks was $2416 million. That figure was $9915 million in CHTR’s case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand International Business Machines Corp. (NYSE:IBM) is the least popular one with only 41 bullish hedge fund positions. Compared to these stocks Charter Communications, Inc. (NASDAQ:CHTR) is more popular among hedge funds. 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 still beat the market by 16.8 percentage points. Unfortunately CHTR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CHTR were disappointed as the stock returned 16.9% during the second quarter (through June 25th) 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.