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 Liberty Broadband Corp (NASDAQ:LBRDK).
Is Liberty Broadband (LBRDK) a good stock to buy now? Hedge funds were getting less bullish. The number of bullish hedge fund positions were trimmed by 2 lately. Liberty Broadband Corp (NASDAQ:LBRDK) was in 56 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 58. Our calculations also showed that LBRDK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 58 hedge funds in our database with LBRDK holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to analyze the latest hedge fund action surrounding Liberty Broadband Corp (NASDAQ:LBRDK).
What have hedge funds been doing with Liberty Broadband Corp (NASDAQ:LBRDK)?
At the end of the third quarter, a total of 56 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. By comparison, 44 hedge funds held shares or bullish call options in LBRDK a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Eagle Capital Management was the largest shareholder of Liberty Broadband Corp (NASDAQ:LBRDK), with a stake worth $800.3 million reported as of the end of September. Trailing Eagle Capital Management was Soros Fund Management, which amassed a stake valued at $754.6 million. Stockbridge Partners, Cat Rock Capital, and Atalan Capital 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 Cat Rock Capital allocated the biggest weight to Liberty Broadband Corp (NASDAQ:LBRDK), around 24.68% of its 13F portfolio. Makaira Partners is also relatively very bullish on the stock, designating 24.11 percent of its 13F equity portfolio to LBRDK.
Because Liberty Broadband Corp (NASDAQ:LBRDK) has faced declining sentiment from hedge fund managers, it’s safe to say that there is a sect of hedge funds who were dropping their entire stakes by the end of the third quarter. Interestingly, Ran Pang’s Quantamental Technologies sold off the largest investment of all the hedgies watched by Insider Monkey, totaling about $1.2 million in stock. Karim Abbadi and Edward McBride’s fund, Centiva Capital, also dumped its stock, about $0.9 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Liberty Broadband Corp (NASDAQ:LBRDK) but similarly valued. These stocks are NIO Limited (NYSE:NIO), Microchip Technology Incorporated (NASDAQ:MCHP), AFLAC Incorporated (NYSE:AFL), Stanley Black & Decker, Inc. (NYSE:SWK), Fresenius Medical Care AG & Co. (NYSE:FMS), Fastenal Company (NASDAQ:FAST), and McCormick & Company, Incorporated (NYSE:MKC). All of these stocks’ market caps are closest to LBRDK’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 32.3 hedge funds with bullish positions and the average amount invested in these stocks was $618 million. That figure was $4167 million in LBRDK’s case. Stanley Black & Decker, Inc. (NYSE:SWK) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. (NYSE:FMS) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Liberty Broadband Corp (NASDAQ:LBRDK) is more popular among hedge funds. Our overall hedge fund sentiment score for LBRDK is 82. 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. 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 percentage points. These stocks returned 31.6% in 2020 through December 2nd but still managed to beat the market by 16 percentage points. Hedge funds were also right about betting on LBRDK as the stock returned 12.8% since the end of September (through 12/2) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.