Hedge Funds Are Dumping United States Cellular Corporation (USM)

·7 min read

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtUnited States Cellular Corporation (NYSE:USM) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

United States Cellular Corporation (NYSE:USM) investors should pay attention to a decrease in hedge fund sentiment lately. USM was in 12 hedge funds' portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with USM positions at the end of the previous quarter. Our calculations also showed that USM 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.

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 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. 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.

[caption id="attachment_735677" align="aligncenter" width="389"]

Sander Gerber of Hudson Bay Capital
Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital[/caption]

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. Keeping this in mind let's take a glance at the recent hedge fund action regarding United States Cellular Corporation (NYSE:USM).

How have hedgies been trading United States Cellular Corporation (NYSE:USM)?

At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -43% from the fourth quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in USM a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Among these funds, GAMCO Investors held the most valuable stake in United States Cellular Corporation (NYSE:USM), which was worth $51 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $20.9 million worth of shares. AQR Capital Management, Hudson Bay Capital Management, and Arrowstreet 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 GAMCO Investors allocated the biggest weight to United States Cellular Corporation (NYSE:USM), around 0.6% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.39 percent of its 13F equity portfolio to USM.

Since United States Cellular Corporation (NYSE:USM) has witnessed declining sentiment from hedge fund managers, it's easy to see that there lies a certain "tier" of money managers who were dropping their entire stakes last quarter. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace LLP sold off the biggest stake of all the hedgies monitored by Insider Monkey, comprising close to $2 million in stock. Sean Murphy's fund, Game Creek Capital, also cut its stock, about $0.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 9 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to United States Cellular Corporation (NYSE:USM). We will take a look at AAON, Inc. (NASDAQ:AAON), Spirit AeroSystems Holdings, Inc. (NYSE:SPR), First Horizon National Corporation (NYSE:FHN), and MasTec, Inc. (NYSE:MTZ). All of these stocks' market caps are similar to USM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AAON,11,24193,4 SPR,38,745596,-10 FHN,31,242866,4 MTZ,24,99669,-17 Average,26,278081,-4.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $278 million. That figure was $92 million in USM's case. Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is the most popular stock in this table. On the other hand AAON, Inc. (NASDAQ:AAON) is the least popular one with only 11 bullish hedge fund positions. United States Cellular Corporation (NYSE:USM) 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 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately USM wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); USM investors were disappointed as the stock returned 5.4% 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 in 2020.

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

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