Were Hedge Funds Right About Shunning Shenandoah Telecommunications Co (SHEN)?

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 Shenandoah Telecommunications Company (NASDAQ:SHEN) and determine whether the smart money was really smart about this stock.

Shenandoah Telecommunications Company (NASDAQ:SHEN) was in 11 hedge funds’ portfolios at the end of March. SHEN investors should be aware of an increase in activity from the world’s largest hedge funds in recent months. There were 10 hedge funds in our database with SHEN positions at the end of the previous quarter. Our calculations also showed that SHEN 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).

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 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 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 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.

Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital

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 let’s review the latest hedge fund action regarding Shenandoah Telecommunications Company (NASDAQ:SHEN).

What does smart money think about Shenandoah Telecommunications Company (NASDAQ:SHEN)?

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in SHEN a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is SHEN A Good Stock To Buy?

The largest stake in Shenandoah Telecommunications Company (NASDAQ:SHEN) was held by Renaissance Technologies, which reported holding $81.8 million worth of stock at the end of September. It was followed by GAMCO Investors with a $5.9 million position. Other investors bullish on the company included Hudson Bay Capital Management, Citadel Investment Group, and AltraVue Capital. In terms of the portfolio weights assigned to each position AltraVue Capital allocated the biggest weight to Shenandoah Telecommunications Company (NASDAQ:SHEN), around 0.89% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.23 percent of its 13F equity portfolio to SHEN.

As aggregate interest increased, key money managers have jumped into Shenandoah Telecommunications Company (NASDAQ:SHEN) headfirst. Hudson Bay Capital Management, managed by Sander Gerber, created the most outsized position in Shenandoah Telecommunications Company (NASDAQ:SHEN). Hudson Bay Capital Management had $4.1 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.8 million position during the quarter. The other funds with brand new SHEN positions are Minhua Zhang’s Weld Capital Management, Noam Gottesman’s GLG Partners, and Peter Muller’s PDT Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Shenandoah Telecommunications Company (NASDAQ:SHEN) but similarly valued. We will take a look at Toll Brothers Inc (NYSE:TOL), California Water Service Group (NYSE:CWT), Eagle Materials, Inc. (NYSE:EXP), and Agios Pharmaceuticals Inc (NASDAQ:AGIO). This group of stocks’ market values are similar to SHEN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TOL 20 238559 -11
CWT 16 29065 -4
EXP 34 344795 -4
AGIO 23 304362 0
Average 23.25 229195 -4.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $229 million. That figure was $97 million in SHEN’s case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand California Water Service Group (NYSE:CWT) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Shenandoah Telecommunications Company (NASDAQ:SHEN) is even less popular than CWT. Hedge funds dodged a bullet by taking a bearish stance towards SHEN. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately SHEN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); SHEN investors were disappointed as the stock returned 0.1% 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 so far in 2020.

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