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Hedge Funds Were Getting Burned By Shaw Communications Inc (SJR) Before The Coronavirus

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Shaw Communications Inc (NYSE:SJR).

Shaw Communications Inc (NYSE:SJR) has experienced a decrease in support from the world’s most elite money managers of late. SJR was in 12 hedge funds’ portfolios at the end of December. There were 13 hedge funds in our database with SJR holdings at the end of the previous quarter. Our calculations also showed that SJR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the eyes of most investors, hedge funds are viewed as slow, outdated investment tools of the past. While there are over 8000 funds trading at present, Our researchers hone in on the upper echelon of this group, about 850 funds. These hedge fund managers orchestrate bulk of the smart money’s total capital, and by tailing their inimitable stock picks, Insider Monkey has identified several investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the latest hedge fund action surrounding Shaw Communications Inc (NYSE:SJR).

How are hedge funds trading Shaw Communications Inc (NYSE:SJR)?

Heading into the first quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SJR over the last 18 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Shaw Communications Inc (NYSE:SJR), with a stake worth $98.1 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $13 million. Citadel Investment Group, Millennium Management, and Bridgewater Associates 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 Signition LP allocated the biggest weight to Shaw Communications Inc (NYSE:SJR), around 1.32% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, dishing out 0.16 percent of its 13F equity portfolio to SJR.

Seeing as Shaw Communications Inc (NYSE:SJR) has faced bearish sentiment from hedge fund managers, it’s safe to say that there was a specific group of hedge funds that slashed their positions entirely by the end of the third quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest stake of the “upper crust” of funds watched by Insider Monkey, totaling close to $19.9 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $0.2 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Shaw Communications Inc (NYSE:SJR) but similarly valued. We will take a look at ON Semiconductor Corporation (NASDAQ:ON), NRG Energy Inc (NYSE:NRG), Booz Allen Hamilton Holding Corporation (NYSE:BAH), and Devon Energy Corporation (NYSE:DVN). This group of stocks’ market valuations match SJR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ON 32 562929 7
NRG 42 1399123 -6
BAH 34 400542 -1
DVN 54 914072 12
Average 40.5 819167 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.5 hedge funds with bullish positions and the average amount invested in these stocks was $819 million. That figure was $137 million in SJR’s case. Devon Energy Corporation (NYSE:DVN) is the most popular stock in this table. On the other hand ON Semiconductor Corporation (NASDAQ:ON) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Shaw Communications Inc (NYSE:SJR) is even less popular than ON. Hedge funds dodged a bullet by taking a bearish stance towards SJR. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately SJR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SJR investors were disappointed as the stock returned -35.8% during the same time period 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 so far in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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