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Did Hedge Funds Make The Right Call On Hasbro, Inc. (HAS) ?

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 Hasbro, Inc. (NASDAQ:HAS) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Hasbro, Inc. (NASDAQ:HAS) was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. HAS has seen a decrease in enthusiasm from smart money recently. There were 36 hedge funds in our database with HAS positions at the end of the previous quarter. Our calculations also showed that HAS 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.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we’re going to view the new hedge fund action regarding Hasbro, Inc. (NASDAQ:HAS).

Hedge fund activity in Hasbro, Inc. (NASDAQ:HAS)

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HAS over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Is HAS A Good Stock To Buy?

More specifically, Citadel Investment Group was the largest shareholder of Hasbro, Inc. (NASDAQ:HAS), with a stake worth $106.2 million reported as of the end of September. Trailing Citadel Investment Group was AQR Capital Management, which amassed a stake valued at $71.9 million. Alyeska Investment Group, Balyasny Asset Management, and Renaissance Technologies 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 Sabrepoint Capital allocated the biggest weight to Hasbro, Inc. (NASDAQ:HAS), around 3.48% of its 13F portfolio. Sirios Capital Management is also relatively very bullish on the stock, earmarking 1.09 percent of its 13F equity portfolio to HAS.

Since Hasbro, Inc. (NASDAQ:HAS) has faced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few hedgies that elected to cut their positions entirely heading into Q4. Intriguingly, Tom Gayner’s Markel Gayner Asset Management sold off the largest investment of the 750 funds monitored by Insider Monkey, worth an estimated $38.4 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dumped its stock, about $22.1 million worth. These moves are important to note, as aggregate hedge fund interest fell by 11 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Hasbro, Inc. (NASDAQ:HAS) but similarly valued. These stocks are J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), Live Nation Entertainment, Inc. (NYSE:LYV), Korea Electric Power Corporation (NYSE:KEP), and Magna International Inc. (NYSE:MGA). All of these stocks’ market caps match HAS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JBHT 25 225951 -3
LYV 46 1626857 2
KEP 7 30022 4
MGA 22 412543 -1
Average 25 573843 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $574 million. That figure was $452 million in HAS’s case. Live Nation Entertainment, Inc. (NYSE:LYV) is the most popular stock in this table. On the other hand Korea Electric Power Corporation (NYSE:KEP) is the least popular one with only 7 bullish hedge fund positions. Hasbro, Inc. (NASDAQ:HAS) 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 HAS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HAS investors were disappointed as the stock returned 5.7% 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.