Were Hedge Funds Right About Dumping The Walt Disney Company (DIS)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thought The Walt Disney Company (NYSE:DIS) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

The Walt Disney Company (NYSE:DIS) was in 102 hedge funds’ portfolios at the end of the first quarter of 2020. DIS shareholders have witnessed a decrease in hedge fund sentiment in recent months. There were 118 hedge funds in our database with DIS holdings at the end of the previous quarter. Our calculations also showed that DIS ranked 20th among the 30 most popular stocks among hedge funds (click for Q1 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Donald Yacktman of Yacktman Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the latest hedge fund action encompassing The Walt Disney Company (NYSE:DIS).

What have hedge funds been doing with The Walt Disney Company (NYSE:DIS)?

Heading into the second quarter of 2020, a total of 102 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DIS over the last 18 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.

The largest stake in The Walt Disney Company (NYSE:DIS) was held by D1 Capital Partners, which reported holding $737.1 million worth of stock at the end of September. It was followed by Eagle Capital Management with a $519.5 million position. Other investors bullish on the company included Fisher Asset Management, Citadel Investment Group, and Yacktman Asset Management. In terms of the portfolio weights assigned to each position Yost Capital Management allocated the biggest weight to The Walt Disney Company (NYSE:DIS), around 12.51% of its 13F portfolio. Atreides Management is also relatively very bullish on the stock, designating 7.67 percent of its 13F equity portfolio to DIS.

Judging by the fact that The Walt Disney Company (NYSE:DIS) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few hedge funds who were dropping their entire stakes last quarter. Intriguingly, Larry Robbins’s Glenview Capital sold off the biggest stake of all the hedgies followed by Insider Monkey, valued at close to $302 million in stock, and Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management was right behind this move, as the fund said goodbye to about $127.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 16 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to The Walt Disney Company (NYSE:DIS). These stocks are Toyota Motor Corporation (NYSE:TM), PepsiCo, Inc. (NASDAQ:PEP), Cisco Systems, Inc. (NASDAQ:CSCO), and Netflix, Inc. (NASDAQ:NFLX). This group of stocks’ market caps resemble DIS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TM 11 206410 -1
PEP 57 2820020 -2
CSCO 58 2531778 -10
NFLX 109 13648064 -5
Average 58.75 4801568 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 58.75 hedge funds with bullish positions and the average amount invested in these stocks was $4802 million. That figure was $4702 million in DIS’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 11 bullish hedge fund positions. The Walt Disney Company (NYSE:DIS) 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 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately DIS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DIS were disappointed as the stock returned 15.3% during the same time period 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 many of these stocks already outperformed the market so far this year.

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