While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Liberty Global plc (NASDAQ:LBTYA).
Liberty Global plc (NASDAQ:LBTYA) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 27 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Horizon Therapeutics Public Limited Company (NASDAQ:HZNP), Avalara, Inc. (NYSE:AVLR), and Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) to gather more data points. Our calculations also showed that LBTYA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Seth Klarman of Baupost 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 take a peek at the key hedge fund action surrounding Liberty Global plc (NASDAQ:LBTYA).
How have hedgies been trading Liberty Global plc (NASDAQ:LBTYA)?
Heading into the fourth quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in LBTYA over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Berkshire Hathaway held the most valuable stake in Liberty Global plc (NASDAQ:LBTYA), which was worth $489.8 million at the end of the third quarter. On the second spot was Route One Investment Company which amassed $218.5 million worth of shares. Baupost Group, Alatus Capital, and Manor Road Capital Partners 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 Alatus Capital allocated the biggest weight to Liberty Global plc (NASDAQ:LBTYA), around 54.66% of its portfolio. Manor Road Capital Partners is also relatively very bullish on the stock, designating 16.73 percent of its 13F equity portfolio to LBTYA.
Judging by the fact that Liberty Global plc (NASDAQ:LBTYA) has witnessed declining sentiment from the smart money, it’s safe to say that there was a specific group of money managers that slashed their positions entirely heading into Q4. It’s worth mentioning that Farallon Capital dumped the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising close to $56.2 million in stock. Ricky Sandler’s fund, Eminence Capital, also dumped its stock, about $14.1 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Liberty Global plc (NASDAQ:LBTYA). We will take a look at Horizon Therapeutics Public Limited Company (NASDAQ:HZNP), Avalara, Inc. (NYSE:AVLR), Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), and bluebird bio Inc (NASDAQ:BLUE). All of these stocks’ market caps resemble LBTYA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HZNP | 32 | 1379525 | -2 |
| AVLR | 44 | 1102762 | 4 |
| TKC | 5 | 5614 | -2 |
| BLUE | 16 | 146471 | -6 |
| Average | 24.25 | 658593 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $659 million. That figure was $1292 million in LBTYA’s case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) is the least popular one with only 5 bullish hedge fund positions. Liberty Global plc (NASDAQ:LBTYA) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LBTYA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LBTYA were disappointed as the stock returned -8.9% during the fourth quarter (through the end of November) 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.
