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2019 Review: Most Favored Hedge Fund Stocks vs. IAC/InterActiveCorp (IAC)

Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards IAC/InterActiveCorp (NASDAQ:IAC) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.

IAC/InterActiveCorp (NASDAQ:IAC) was in 51 hedge funds’ portfolios at the end of September. IAC has experienced an increase in hedge fund interest of late. There were 47 hedge funds in our database with IAC holdings at the end of the previous quarter. Our calculations also showed that IAC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

FARALLON CAPITAL

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a peek at the latest hedge fund action regarding IAC/InterActiveCorp (NASDAQ:IAC).

How have hedgies been trading IAC/InterActiveCorp (NASDAQ:IAC)?

At the end of the third quarter, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in IAC over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is IAC A Good Stock To Buy?

The largest stake in IAC/InterActiveCorp (NASDAQ:IAC) was held by Cadian Capital, which reported holding $331.9 million worth of stock at the end of September. It was followed by Farallon Capital with a $317.7 million position. Other investors bullish on the company included Luxor Capital Group, Aristeia Capital, and Samlyn Capital. In terms of the portfolio weights assigned to each position Marcato Capital Management allocated the biggest weight to IAC/InterActiveCorp (NASDAQ:IAC), around 67.92% of its 13F portfolio. Cadian Capital is also relatively very bullish on the stock, designating 15.78 percent of its 13F equity portfolio to IAC.

As aggregate interest increased, specific money managers have been driving this bullishness. Farallon Capital, initiated the most outsized position in IAC/InterActiveCorp (NASDAQ:IAC). Farallon Capital had $317.7 million invested in the company at the end of the quarter. Robert Henry Lynch’s Aristeia Capital also initiated a $185.4 million position during the quarter. The other funds with brand new IAC positions are Andy Redleaf’s Whitebox Advisors, Brandon Haley’s Holocene Advisors, and David Costen Haley’s HBK Investments.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as IAC/InterActiveCorp (NASDAQ:IAC) but similarly valued. We will take a look at Arista Networks Inc (NYSE:ANET), Keysight Technologies Inc (NYSE:KEYS), Restaurant Brands International Inc (NYSE:QSR), and Best Buy Co., Inc. (NYSE:BBY). This group of stocks’ market values are similar to IAC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ANET 20 178704 -8
KEYS 45 999981 6
QSR 55 4249554 16
BBY 27 628028 -4
Average 36.75 1514067 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.75 hedge funds with bullish positions and the average amount invested in these stocks was $1514 million. That figure was $2111 million in IAC’s case. Restaurant Brands International Inc (NYSE:QSR) is the most popular stock in this table. On the other hand Arista Networks Inc (NYSE:ANET) is the least popular one with only 20 bullish hedge fund positions. IAC/InterActiveCorp (NASDAQ:IAC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on IAC, though not to the same extent, as the stock returned 34% during 2019 (as of 12/23) and outperformed the market as well.
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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