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Liberty Global plc (LBTYA): Hedge Fund Sentiment Near All Time Low

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 Liberty Global plc (NASDAQ:LBTYA) and determine whether hedge funds had an edge regarding this stock.

Liberty Global plc (NASDAQ:LBTYA) was in 29 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 64. LBTYA has experienced a decrease in support from the world’s most elite money managers of late. There were 30 hedge funds in our database with LBTYA holdings at the end of March. Our calculations also showed that LBTYA 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.

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 56 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.

BAUPOST GROUP Seth Klarman

Seth Klarman of Baupost Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. 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. Keeping this in mind let’s analyze the recent hedge fund action surrounding Liberty Global plc (NASDAQ:LBTYA).

How have hedgies been trading Liberty Global plc (NASDAQ:LBTYA)?

At the end of June, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LBTYA over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Berkshire Hathaway was the largest shareholder of Liberty Global plc (NASDAQ:LBTYA), with a stake worth $422.1 million reported as of the end of September. Trailing Berkshire Hathaway was Route One Investment Company, which amassed a stake valued at $184.9 million. Baupost Group, Renaissance Technologies, and Bill & Melinda Gates Foundation Trust 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 Lion Point allocated the biggest weight to Liberty Global plc (NASDAQ:LBTYA), around 6.63% of its 13F portfolio. Route One Investment Company is also relatively very bullish on the stock, designating 5.27 percent of its 13F equity portfolio to LBTYA.

Because Liberty Global plc (NASDAQ:LBTYA) has faced declining sentiment from the smart money, we can see that there is a sect of hedge funds who sold off their positions entirely last quarter. Interestingly, Antoine Firmenich and Richard Vogel’s Alatus Capital sold off the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth close to $63.6 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund sold off about $5.6 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Liberty Global plc (NASDAQ:LBTYA) but similarly valued. These stocks are International Flavors & Fragrances Inc (NYSE:IFF), Duke Realty Corporation (NYSE:DRE), Steris Plc (NYSE:STE), EXACT Sciences Corporation (NASDAQ:EXAS), Pinterest, Inc. (NYSE:PINS), Avangrid, Inc. (NYSE:AGR), and Burlington Stores Inc (NYSE:BURL). This group of stocks’ market caps are closest to LBTYA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IFF 31 234080 3
DRE 19 102859 3
STE 40 545240 5
EXAS 43 993223 9
PINS 53 1067483 15
AGR 18 132976 0
BURL 38 1475273 -2
Average 34.6 650162 4.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.6 hedge funds with bullish positions and the average amount invested in these stocks was $650 million. That figure was $1048 million in LBTYA’s case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand Avangrid, Inc. (NYSE:AGR) is the least popular one with only 18 bullish hedge fund positions. Liberty Global plc (NASDAQ:LBTYA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LBTYA is 33.3. 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 23.8% in 2020 through September 14th and surpassed the market by 17.6 percentage points. Unfortunately LBTYA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LBTYA investors were disappointed as the stock returned -0.8% 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.

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