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Do Hedge Funds Love Graham Holdings Co (GHC)?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Is Graham Holdings Co (NYSE:GHC) the right pick for your portfolio? The best stock pickers are becoming less hopeful. The number of bullish hedge fund bets decreased by 5 recently. Our calculations also showed that GHC isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

01 Mason Hawkins, Southeastern Asset Management

We’re going to take a glance at the recent hedge fund action encompassing Graham Holdings Co (NYSE:GHC).

What does the smart money think about Graham Holdings Co (NYSE:GHC)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in GHC at the beginning of this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

GHC_dec2018

Of the funds tracked by Insider Monkey, Mason Hawkins’s Southeastern Asset Management has the largest position in Graham Holdings Co (NYSE:GHC), worth close to $392 million, comprising 4.7% of its total 13F portfolio. Sitting at the No. 2 spot is Scott Wallace of Wallace Capital Management, with a $70.3 million position; 8.9% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish contain Cliff Asness’s AQR Capital Management, Jim Simons’s Renaissance Technologies and Noam Gottesman’s GLG Partners.

Judging by the fact that Graham Holdings Co (NYSE:GHC) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few funds who were dropping their entire stakes last quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest position of the 700 funds followed by Insider Monkey, worth close to $4.4 million in stock, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt. was right behind this move, as the fund cut about $1 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 5 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Graham Holdings Co (NYSE:GHC) but similarly valued. These stocks are Kennedy-Wilson Holdings Inc (NYSE:KW), Valmont Industries, Inc. (NYSE:VMI), Wright Medical Group N.V. (NASDAQ:WMGI), and Brookfield Property REIT Inc. (NASDAQ:BPR). This group of stocks’ market caps match GHC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KW 12 461812 3
VMI 17 285315 -3
WMGI 35 958841 6
BPR 20 358911 20
Average 21 516220 6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $516 million. That figure was $587 million in GHC’s case. Wright Medical Group N.V. (NASDAQ:WMGI) is the most popular stock in this table. On the other hand Kennedy-Wilson Holdings Inc (NYSE:KW) is the least popular one with only 12 bullish hedge fund positions. Graham Holdings Co (NYSE:GHC) 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. In this regard WMGI might be a better candidate to consider a long position.

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

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