Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Liberty Media Corporation (NASDAQ:FWONK) and compare its performance to hedge funds’ consensus picks in 2019.
Is Liberty Media Corporation (NASDAQ:FWONK) undervalued? Money managers are reducing their bets on the stock. The number of bullish hedge fund bets retreated by 2 in recent months. Our calculations also showed that FWONK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). FWONK was in 30 hedge funds’ portfolios at the end of the third quarter of 2019. There were 32 hedge funds in our database with FWONK positions at the end of the previous quarter.
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 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. 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.
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a look at the key hedge fund action regarding Liberty Media Corporation (NASDAQ:FWONK).
Hedge fund activity in Liberty Media Corporation (NASDAQ:FWONK)
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FWONK over the last 17 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, Viking Global held the most valuable stake in Liberty Media Corporation (NASDAQ:FWONK), which was worth $415.8 million at the end of the third quarter. On the second spot was Eminence Capital which amassed $371.5 million worth of shares. Ashe Capital, Sculptor Capital, and Diamond Hill 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 Ashe Capital allocated the biggest weight to Liberty Media Corporation (NASDAQ:FWONK), around 16.48% of its 13F portfolio. Kontiki Capital is also relatively very bullish on the stock, designating 14.96 percent of its 13F equity portfolio to FWONK.
Because Liberty Media Corporation (NASDAQ:FWONK) has witnessed a decline in interest from the smart money, it’s easy to see that there was a specific group of funds that slashed their entire stakes by the end of the third quarter. Interestingly, Crispin Odey’s Odey Asset Management Group cut the largest stake of all the hedgies watched by Insider Monkey, valued at an estimated $18.4 million in stock, and Spencer M. Waxman’s Shannon River Fund Management was right behind this move, as the fund dropped about $5.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 2 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 Liberty Media Corporation (NASDAQ:FWONK) but similarly valued. These stocks are Avery Dennison Corporation (NYSE:AVY), Vereit Inc (NYSE:VER), Advanced Semiconductor Engineering (NYSE:ASX), and Galapagos NV (NASDAQ:GLPG). This group of stocks’ market valuations resemble FWONK’s market valuation.
|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 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $269 million. That figure was $1916 million in FWONK’s case. Vereit Inc (NYSE:VER) is the most popular stock in this table. On the other hand Advanced Semiconductor Engineering (NYSE:ASX) is the least popular one with only 8 bullish hedge fund positions. Liberty Media Corporation (NASDAQ:FWONK) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on FWONK as the stock returned 49.3% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.