How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Fox Corporation (NASDAQ:FOXA) and determine whether hedge funds had an edge regarding this stock.
Fox Corporation (NASDAQ:FOXA) was in 35 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 78. FOXA investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. There were 38 hedge funds in our database with FOXA positions at the end of the first quarter. Our calculations also showed that FOXA isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 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 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to go over the key hedge fund action encompassing Fox Corporation (NASDAQ:FOXA).
What does smart money think about Fox Corporation (NASDAQ:FOXA)?
Heading into the third quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. By comparison, 60 hedge funds held shares or bullish call options in FOXA a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Baupost Group was the largest shareholder of Fox Corporation (NASDAQ:FOXA), with a stake worth $732.8 million reported as of the end of September. Trailing Baupost Group was Renaissance Technologies, which amassed a stake valued at $275.1 million. Yacktman Asset Management, Tremblant Capital, and 3G Sahana Capital Management 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 3G Sahana Capital Management allocated the biggest weight to Fox Corporation (NASDAQ:FOXA), around 11.92% of its 13F portfolio. Baupost Group is also relatively very bullish on the stock, setting aside 9.15 percent of its 13F equity portfolio to FOXA.
Since Fox Corporation (NASDAQ:FOXA) has experienced bearish sentiment from the smart money, it’s safe to say that there was a specific group of hedge funds that decided to sell off their positions entirely in the second quarter. It’s worth mentioning that Mitch Kuflik and Rob Sobel’s Brahman Capital dropped the largest stake of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $56.6 million in stock. Farhad Nanji and Michael DeMichele’s fund, MFN Partners, also dumped its stock, about $52.3 million worth. These moves are important to note, as total hedge fund interest was cut by 3 funds in the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Fox Corporation (NASDAQ:FOXA) but similarly valued. We will take a look at Maxim Integrated Products Inc. (NASDAQ:MXIM), Laboratory Corp. of America Holdings (NYSE:LH), Amcor plc (NYSE:AMCR), Pioneer Natural Resources Company (NYSE:PXD), Bilibili Inc. (NASDAQ:BILI), Hess Corporation (NYSE:HES), and Take-Two Interactive Software, Inc. (NASDAQ:TTWO). This group of stocks’ market caps are similar to FOXA’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 36.3 hedge funds with bullish positions and the average amount invested in these stocks was $796 million. That figure was $1612 million in FOXA’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Amcor plc (NYSE:AMCR) is the least popular one with only 16 bullish hedge fund positions. Fox Corporation (NASDAQ:FOXA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FOXA is 36.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately FOXA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); FOXA investors were disappointed as the stock returned 3.9% since Q2 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.
Disclosure: None. This article was originally published at Insider Monkey.