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Were Hedge Funds Right About Selling Tellurian Inc. (TELL)?

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. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Tellurian Inc. (NASDAQ:TELL).

Tellurian Inc. (NASDAQ:TELL) was in 11 hedge funds’ portfolios at the end of the fourth quarter of 2019. TELL shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. There were 15 hedge funds in our database with TELL holdings at the end of the previous quarter. Our calculations also showed that TELL 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).

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 S&P 500 ETFs by more than 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. 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.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. 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. With all of this in mind we’re going to take a gander at the new hedge fund action encompassing Tellurian Inc. (NASDAQ:TELL).

How have hedgies been trading Tellurian Inc. (NASDAQ:TELL)?

Heading into the first quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in TELL a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Electron Capital Partners, managed by Jos Shaver, holds the biggest position in Tellurian Inc. (NASDAQ:TELL). Electron Capital Partners has a $23.2 million position in the stock, comprising 2.8% of its 13F portfolio. On Electron Capital Partners’s heels is Schonfeld Strategic Advisors, led by Ryan Tolkin (CIO), holding a $7.3 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions encompass Steve Pattyn’s Yaupon Capital, and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Electron Capital Partners allocated the biggest weight to Tellurian Inc. (NASDAQ:TELL), around 2.77% of its 13F portfolio. Yaupon Capital is also relatively very bullish on the stock, setting aside 2.08 percent of its 13F equity portfolio to TELL.

Seeing as Tellurian Inc. (NASDAQ:TELL) has faced declining sentiment from hedge fund managers, we can see that there were a few funds that decided to sell off their positions entirely in the third quarter. It’s worth mentioning that Guy Shahar’s DSAM Partners cut the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $2.5 million in stock. David Rosen’s fund, Rubric Capital Management, also dropped its stock, about $2.5 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 4 funds in the third quarter.

Let’s now review hedge fund activity in other stocks similar to Tellurian Inc. (NASDAQ:TELL). These stocks are Kaiser Aluminum Corp. (NASDAQ:KALU), Easterly Government Properties Inc (NYSE:DEA), MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI), and PJT Partners Inc (NYSE:PJT). This group of stocks’ market valuations match TELL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KALU 17 110516 -4
DEA 10 105516 -1
MTSI 18 223816 3
PJT 20 156297 3
Average 16.25 149036 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $149 million. That figure was $38 million in TELL’s case. PJT Partners Inc (NYSE:PJT) is the most popular stock in this table. On the other hand Easterly Government Properties Inc (NYSE:DEA) is the least popular one with only 10 bullish hedge fund positions. Tellurian Inc. (NASDAQ:TELL) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately TELL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TELL investors were disappointed as the stock returned -82.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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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