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IAC/InterActiveCorp (IAC): Hedge Funds In Wait-and-See Mode

Is IAC/InterActiveCorp (NASDAQ:IAC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

IAC/InterActiveCorp (NASDAQ:IAC) investors should be aware of an increase in support from the world’s most elite money managers of late. Our calculations also showed that IAC isn’t among the 30 most popular stocks among hedge funds.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Christian Leone of Luxor Capital Group

Christian Leone of Luxor Capital Group

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the key hedge fund action surrounding IAC/InterActiveCorp (NASDAQ:IAC).

Hedge fund activity in IAC/InterActiveCorp (NASDAQ:IAC)

At the end of the third quarter, a total of 51 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. On the other hand, there were a total of 51 hedge funds with a bullish position in IAC a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

IAC_nov2019

According to Insider Monkey’s hedge fund database, Eric Bannasch’s Cadian Capital has the largest position in IAC/InterActiveCorp (NASDAQ:IAC), worth close to $331.9 million, comprising 15.8% of its total 13F portfolio. Coming in second is Farallon Capital, which holds a $317.7 million position; the fund has 3.3% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism include Christian Leone’s Luxor Capital Group, Robert Henry Lynch’s Aristeia Capital and Robert Pohly’s Samlyn Capital. In terms of the portfolio weights assigned to each position Marcato Capital Management allocated the biggest weight to IAC/InterActiveCorp (NASDAQ:IAC), around 67.92% of its portfolio. Cadian Capital is also relatively very bullish on the stock, designating 15.78 percent of its 13F equity portfolio to IAC.

As aggregate interest increased, some big names were breaking ground themselves. Farallon Capital, established the biggest position in IAC/InterActiveCorp (NASDAQ:IAC). Farallon Capital had $317.7 million invested in the company at the end of the quarter. Robert Henry Lynch’s Aristeia Capital also made a $185.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Andy Redleaf’s Whitebox Advisors, Brandon Haley’s Holocene Advisors, and David Costen Haley’s HBK Investments.

Let’s go over hedge fund activity in other stocks similar to IAC/InterActiveCorp (NASDAQ:IAC). We will take a look at Arista Networks Inc (NYSE:ANET), Keysight Technologies Inc (NYSE:KEYS), Restaurant Brands International Inc (NYSE:QSR), and Best Buy Co., Inc. (NYSE:BBY). This group of stocks’ market valuations are closest to IAC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ANET 20 178704 -8
KEYS 45 999981 6
QSR 55 4249554 16
BBY 27 628028 -4
Average 36.75 1514067 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.75 hedge funds with bullish positions and the average amount invested in these stocks was $1514 million. That figure was $2111 million in IAC’s case. Restaurant Brands International Inc (NYSE:QSR) is the most popular stock in this table. On the other hand Arista Networks Inc (NYSE:ANET) is the least popular one with only 20 bullish hedge fund positions. IAC/InterActiveCorp (NASDAQ:IAC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 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 1.7% during the fourth quarter (through 11/22) 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 many of these stocks already outperformed the market so far this year.

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

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