Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards IAC/InterActiveCorp (NASDAQ:IAC).
IAC/InterActiveCorp (NASDAQ:IAC) was in 71 hedge funds’ portfolios at the end of December. IAC investors should be aware of an increase in support from the world’s most elite money managers lately. There were 55 hedge funds in our database with IAC positions at the end of the previous quarter. Our calculations also showed that IAC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 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 41 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.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to take a look at the key hedge fund action surrounding IAC/InterActiveCorp (NASDAQ:IAC).
What have hedge funds been doing with IAC/InterActiveCorp (NASDAQ:IAC)?
Heading into the first quarter of 2020, a total of 71 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the third quarter of 2019. On the other hand, there were a total of 50 hedge funds with a bullish position in IAC 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 IAC/InterActiveCorp (NASDAQ:IAC) was held by Farallon Capital, which reported holding $514.8 million worth of stock at the end of September. It was followed by Aristeia Capital with a $387.9 million position. Other investors bullish on the company included Cadian Capital, Luxor Capital Group, and Ursa Fund Management. In terms of the portfolio weights assigned to each position AREX Capital Management allocated the biggest weight to IAC/InterActiveCorp (NASDAQ:IAC), around 37.35% of its 13F portfolio. Aristeia Capital is also relatively very bullish on the stock, dishing out 25.63 percent of its 13F equity portfolio to IAC.
Consequently, specific money managers were breaking ground themselves. Ursa Fund Management, managed by Andrew Hahn, initiated the biggest position in IAC/InterActiveCorp (NASDAQ:IAC). Ursa Fund Management had $292.2 million invested in the company at the end of the quarter. Lone Pine Capital also made a $99.1 million investment in the stock during the quarter. The other funds with brand new IAC positions are Michel Massoud’s Melqart Asset Management, Andrew Rechtschaffen’s AREX Capital Management, and Michael Kahan and Jeremy Kahan’s North Peak Capital.
Let’s now review hedge fund activity in other stocks similar to IAC/InterActiveCorp (NASDAQ:IAC). We will take a look at Smith & Nephew plc (NYSE:SNN), Synopsys, Inc. (NASDAQ:SNPS), Veeva Systems Inc (NYSE:VEEV), and Brown-Forman Corporation (NYSE:BF). All of these stocks’ market caps are similar to IAC’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $668 million. That figure was $3319 million in IAC’s case. Synopsys, Inc. (NASDAQ:SNPS) is the most popular stock in this table. On the other hand Smith & Nephew plc (NYSE:SNN) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks IAC/InterActiveCorp (NASDAQ:IAC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Unfortunately IAC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IAC were disappointed as the stock returned -24% during the first two months of 2020 (through March 9th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.