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Did Hedge Funds Make The Right Call On Qurate Retail, Inc. (QRTEA) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Qurate Retail, Inc. (NASDAQ:QRTEA) and determine whether hedge funds skillfully traded this stock.

Is Qurate Retail, Inc. (NASDAQ:QRTEA) the right investment to pursue these days? The best stock pickers were becoming less confident. The number of bullish hedge fund bets shrunk by 7 recently. Our calculations also showed that QRTEA 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.

Thomas Bancroft - Makaira Partners

Thomas Bancroft of Makaira Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this tiny lithium stock. Now we’re going to review the latest hedge fund action regarding Qurate Retail, Inc. (NASDAQ:QRTEA).

How have hedgies been trading Qurate Retail, Inc. (NASDAQ:QRTEA)?

Heading into the second quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in QRTEA a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Qurate Retail, Inc. (NASDAQ:QRTEA) was held by FPR Partners, which reported holding $124.5 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $78.2 million position. Other investors bullish on the company included AQR Capital Management, Yacktman Asset Management, and Makaira Partners. In terms of the portfolio weights assigned to each position Makaira Partners allocated the biggest weight to Qurate Retail, Inc. (NASDAQ:QRTEA), around 9.87% of its 13F portfolio. Abrams Bison Investments is also relatively very bullish on the stock, dishing out 7.9 percent of its 13F equity portfolio to QRTEA.

Since Qurate Retail, Inc. (NASDAQ:QRTEA) has experienced falling interest from hedge fund managers, logic holds that there exists a select few money managers that decided to sell off their full holdings last quarter. Interestingly, Renaissance Technologies dumped the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth about $20.7 million in stock. Jeffrey Bronchick’s fund, Cove Street Capital, also dumped its stock, about $17.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 7 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Qurate Retail, Inc. (NASDAQ:QRTEA). We will take a look at Lexington Realty Trust (NYSE:LXP), Air Lease Corp (NYSE:AL), Blackstone Mortgage Trust Inc (NYSE:BXMT), and United States Cellular Corporation (NYSE:USM). This group of stocks’ market valuations are closest to QRTEA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LXP 10 41143 -4
AL 20 378732 -3
BXMT 19 56818 4
USM 12 91991 -9
Average 15.25 142171 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $478 million in QRTEA’s case. Air Lease Corp (NYSE:AL) is the most popular stock in this table. On the other hand Lexington Realty Trust (NYSE:LXP) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Qurate Retail, Inc. (NASDAQ:QRTEA) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on QRTEA as the stock returned 55.5% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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