Were Hedge Funds Right About Selling Uniti Group Inc. (UNIT)?

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. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Uniti Group Inc. (NASDAQ:UNIT) based on those filings.

Uniti Group Inc. (NASDAQ:UNIT) was in 15 hedge funds’ portfolios at the end of December. UNIT has experienced a decrease in activity from the world’s largest hedge funds in recent months. There were 24 hedge funds in our database with UNIT holdings at the end of the previous quarter. Our calculations also showed that UNIT 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).

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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. Keeping this in mind let’s review the new hedge fund action encompassing Uniti Group Inc. (NASDAQ:UNIT).

How are hedge funds trading Uniti Group Inc. (NASDAQ:UNIT)?

At Q4’s end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -38% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in UNIT over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mason Capital Management, managed by Kenneth Mario Garschina, holds the most valuable position in Uniti Group Inc. (NASDAQ:UNIT). Mason Capital Management has a $52.4 million position in the stock, comprising 18% of its 13F portfolio. On Mason Capital Management’s heels is D E Shaw, managed by D. E. Shaw, which holds a $40.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass John Overdeck and David Siegel’s Two Sigma Advisors, Martin Hughes’s Toscafund Asset Management and Mendel Hui’s Isomer Partners. In terms of the portfolio weights assigned to each position Toscafund Asset Management allocated the biggest weight to Uniti Group Inc. (NASDAQ:UNIT), around 40.56% of its 13F portfolio. Mason Capital Management is also relatively very bullish on the stock, designating 17.97 percent of its 13F equity portfolio to UNIT.

Because Uniti Group Inc. (NASDAQ:UNIT) has witnessed a decline in interest from the smart money, it’s safe to say that there exists a select few money managers that elected to cut their entire stakes last quarter. At the top of the heap, Dan Kamensky’s Marble Ridge Capital said goodbye to the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at close to $6.6 million in stock. Edward A. Mule’s fund, Silver Point Capital, also sold off its stock, about $6.3 million worth. These moves are important to note, as total hedge fund interest fell by 9 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Uniti Group Inc. (NASDAQ:UNIT) but similarly valued. These stocks are Akcea Therapeutics, Inc. (NASDAQ:AKCA), TTM Technologies, Inc. (NASDAQ:TTMI), S & T Bancorp Inc (NASDAQ:STBA), and Linx S.A. (NYSE:LINX). All of these stocks’ market caps are closest to UNIT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AKCA 10 17000 5
TTMI 11 30761 -1
STBA 9 8690 -2
LINX 4 31516 -1
Average 8.5 21992 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $158 million in UNIT’s case. TTM Technologies, Inc. (NASDAQ:TTMI) is the most popular stock in this table. On the other hand Linx S.A. (NYSE:LINX) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Uniti Group Inc. (NASDAQ:UNIT) is more popular among hedge funds. 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 and still beat the market by 4.2 percentage points. Unfortunately UNIT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UNIT were disappointed as the stock returned -29.5% during the three months of 2020 (through April 6th) 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.