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Did Hedge Funds Make The Right Call On J2 Global Inc (JCOM) ?

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 J2 Global Inc (NASDAQ:JCOM) at the end of the first quarter and determine whether the smart money was really smart about this stock.

J2 Global Inc (NASDAQ:JCOM) was in 21 hedge funds’ portfolios at the end of the first quarter of 2020. JCOM investors should be aware of a decrease in hedge fund sentiment lately. There were 23 hedge funds in our database with JCOM holdings at the end of the previous quarter. Our calculations also showed that JCOM 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.

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 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 new hedge fund action regarding J2 Global Inc (NASDAQ:JCOM).

Hedge fund activity in J2 Global Inc (NASDAQ:JCOM)

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards JCOM over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Amy Minella’s Cardinal Capital has the number one position in J2 Global Inc (NASDAQ:JCOM), worth close to $82.3 million, comprising 4% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, led by Cliff Asness, holding a $57.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers that are bullish comprise Ken Fisher’s Fisher Asset Management, Chuck Royce’s Royce & Associates and George McCabe’s Portolan Capital Management. In terms of the portfolio weights assigned to each position Cardinal Capital allocated the biggest weight to J2 Global Inc (NASDAQ:JCOM), around 4.05% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, setting aside 1.79 percent of its 13F equity portfolio to JCOM.

Since J2 Global Inc (NASDAQ:JCOM) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of funds that decided to sell off their full holdings last quarter. At the top of the heap, Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors cut the largest position of the 750 funds followed by Insider Monkey, worth an estimated $47.7 million in stock. Daniel S. Och’s fund, OZ Management, also dropped its stock, about $7.7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to J2 Global Inc (NASDAQ:JCOM). These stocks are Inphi Corporation (NYSE:IPHI), Under Armour Inc (NYSE:UA), Primerica, Inc. (NYSE:PRI), and Everbridge, Inc. (NASDAQ:EVBG). This group of stocks’ market valuations resemble JCOM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IPHI 36 482361 5
UA 37 660755 5
PRI 23 303962 -5
EVBG 31 796566 -6
Average 31.75 560911 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $561 million. That figure was $219 million in JCOM’s case. Under Armour Inc (NYSE:UA) is the most popular stock in this table. On the other hand Primerica, Inc. (NYSE:PRI) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks J2 Global Inc (NASDAQ:JCOM) is even less popular than PRI. Hedge funds dodged a bullet by taking a bearish stance towards JCOM. Our calculations showed that the top 10 most popular hedge fund stocks 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 but managed to beat the market by 17.1 percentage points. Unfortunately JCOM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); JCOM investors were disappointed as the stock returned -26.5% since Q1 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 so far in 2020.

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