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Are Hedge Funds Going To Get Burned By Sinclair Broadcast Group, Inc. (SBGI) ?

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds.

Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) was in 36 hedge funds’ portfolios at the end of the second quarter of 2019. SBGI has experienced an increase in hedge fund sentiment recently. There were 28 hedge funds in our database with SBGI positions at the end of the previous quarter. Our calculations also showed that SBGI isn’t among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

Ken-Heebner

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the key hedge fund action surrounding Sinclair Broadcast Group, Inc. (NASDAQ:SBGI).

What have hedge funds been doing with Sinclair Broadcast Group, Inc. (NASDAQ:SBGI)?

At Q2’s end, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SBGI over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with SBGI Positions

The largest stake in Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) was held by Renaissance Technologies, which reported holding $230.1 million worth of stock at the end of March. It was followed by Citadel Investment Group with a $41.4 million position. Other investors bullish on the company included Raging Capital Management, Capital Growth Management, and D E Shaw.

As one would reasonably expect, key money managers have jumped into Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) headfirst. Capital Growth Management, managed by Ken Heebner, assembled the largest position in Sinclair Broadcast Group, Inc. (NASDAQ:SBGI). Capital Growth Management had $33.7 million invested in the company at the end of the quarter. Parsa Kiai’s Steamboat Capital Partners also initiated a $16.3 million position during the quarter. The other funds with new positions in the stock are Jesse Ro’s Tiger Legatus Capital, Lee Ainslie’s Maverick Capital, and Isaac Corre’s Governors Lane.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) but similarly valued. We will take a look at Ashland Global Holdings Inc. (NYSE:ASH), ViaSat, Inc. (NASDAQ:VSAT), TFS Financial Corporation (NASDAQ:TFSL), and Nutanix, Inc. (NASDAQ:NTNX). This group of stocks’ market valuations resemble SBGI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ASH 31 1316973 1
VSAT 28 2028094 6
TFSL 5 153154 -2
NTNX 25 643924 -11
Average 22.25 1035536 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $1036 million. That figure was $584 million in SBGI’s case. Ashland Global Holdings Inc. (NYSE:ASH) is the most popular stock in this table. On the other hand TFS Financial Corporation (NASDAQ:TFSL) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SBGI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SBGI were disappointed as the stock returned -19.9% during the third 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 20 most popular stocks (view the video below) among hedge funds as many of these stocks already outperformed the market in Q3.
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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