Did Hedge Funds Make The Right Call On Graham Holdings Co (GHC) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Graham Holdings Co (NYSE:GHC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Graham Holdings Co (NYSE:GHC) was in 21 hedge funds’ portfolios at the end of the first quarter of 2020. GHC has experienced an increase in hedge fund interest lately. There were 18 hedge funds in our database with GHC holdings at the end of the previous quarter. Our calculations also showed that GHC 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.

Today there are many indicators shareholders employ to appraise stocks. A pair of the most useful indicators are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the best money managers can outperform the market by a superb amount (see the details here).

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to go over the latest hedge fund action regarding Graham Holdings Co (NYSE:GHC).

What have hedge funds been doing with Graham Holdings Co (NYSE:GHC)?

At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the fourth quarter of 2019. By comparison, 15 hedge funds held shares or bullish call options in GHC a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Southeastern Asset Management, managed by Mason Hawkins, holds the largest position in Graham Holdings Co (NYSE:GHC). Southeastern Asset Management has a $127.1 million position in the stock, comprising 3% of its 13F portfolio. The second largest stake is held by Wallace Capital Management, managed by Scott Wallace, which holds a $49.9 million position; 9.6% of its 13F portfolio is allocated to the stock. Some other peers that are bullish contain Cliff Asness’s AQR Capital Management, Paul Marshall and Ian Wace’s Marshall Wace LLP and Renaissance Technologies. In terms of the portfolio weights assigned to each position Wallace Capital Management allocated the biggest weight to Graham Holdings Co (NYSE:GHC), around 9.57% of its 13F portfolio. Madison Avenue Partners is also relatively very bullish on the stock, dishing out 4.35 percent of its 13F equity portfolio to GHC.

Now, specific money managers were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the largest position in Graham Holdings Co (NYSE:GHC). Marshall Wace LLP had $10.4 million invested in the company at the end of the quarter. Eli Samaha’s Madison Avenue Partners also initiated a $8.8 million position during the quarter. The following funds were also among the new GHC investors: Noah Levy and Eugene Dozortsev’s Newtyn Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Graham Holdings Co (NYSE:GHC) but similarly valued. These stocks are SmileDirectClub, Inc. (NASDAQ:SDC), Dorman Products Inc. (NASDAQ:DORM), ExlService Holdings, Inc. (NASDAQ:EXLS), and Progyny, Inc. (NASDAQ:PGNY). This group of stocks’ market values match GHC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SDC 20 65952 0
DORM 14 40202 1
EXLS 15 46684 -3
PGNY 10 13623 2
Average 14.75 41615 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $284 million in GHC’s case. SmileDirectClub, Inc. (NASDAQ:SDC) is the most popular stock in this table. On the other hand Progyny, Inc. (NASDAQ:PGNY) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Graham Holdings Co (NYSE:GHC) is more popular among hedge funds. 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately GHC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GHC were disappointed as the stock returned 20.2% since the end of the first 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.