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Were Hedge Funds Right About Piling Into IAC Holdings, Inc. (IAC)?

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 IAC Holdings, Inc. (NASDAQ:IAC) and determine whether hedge funds had an edge regarding this stock.

Is IAC Holdings, Inc. (NASDAQ:IAC) going to take off soon? Hedge funds were selling. The number of long hedge fund positions went down by 14 recently. Our calculations also showed that IAC isn’t 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). IAC was in 57 hedge funds’ portfolios at the end of the first quarter of 2020. There were 71 hedge funds in our database with IAC positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Christian Leone of Luxor Capital Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. 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 we’re going to review the key hedge fund action surrounding IAC Holdings, Inc. (NASDAQ:IAC).

How have hedgies been trading IAC Holdings, Inc. (NASDAQ:IAC)?

Heading into the second quarter of 2020, a total of 57 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in IAC 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.

According to Insider Monkey’s hedge fund database, Aristeia Capital, managed by Robert Henry Lynch, holds the most valuable position in IAC Holdings, Inc. (NASDAQ:IAC). Aristeia Capital has a $371.1 million position in the stock, comprising 31.3% of its 13F portfolio. Coming in second is Cadian Capital, led by Eric Bannasch, holding a $361.4 million position; the fund has 17.8% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions include Farallon Capital, Ken Griffin’s Citadel Investment Group and Christian Leone’s Luxor Capital Group. In terms of the portfolio weights assigned to each position AREX Capital Management allocated the biggest weight to IAC Holdings, Inc. (NASDAQ:IAC), around 49.65% of its 13F portfolio. Aristeia Capital is also relatively very bullish on the stock, dishing out 31.33 percent of its 13F equity portfolio to IAC.

Judging by the fact that IAC Holdings, Inc. (NASDAQ:IAC) has witnessed declining sentiment from the smart money, logic holds that there exists a select few hedge funds who were dropping their entire stakes in the first quarter. Interestingly, Robert Pitts’s Steadfast Capital Management cut the biggest position of the 750 funds followed by Insider Monkey, totaling about $64.7 million in stock. Robert Pohly’s fund, Samlyn Capital, also dumped its stock, about $62.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 14 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as IAC Holdings, Inc. (NASDAQ:IAC) but similarly valued. These stocks are Skyworks Solutions Inc (NASDAQ:SWKS), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), Marvell Technology Group Ltd. (NASDAQ:MRVL), and Okta, Inc. (NASDAQ:OKTA). This group of stocks’ market valuations are similar to IAC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SWKS 29 768807 -14
BMRN 54 1567492 5
MRVL 29 498283 0
OKTA 48 1086612 9
Average 40 980299 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $980 million. That figure was $2693 million in IAC’s case. BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) is the most popular stock in this table. On the other hand Skyworks Solutions Inc (NASDAQ:SWKS) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks IAC Holdings, Inc. (NASDAQ:IAC) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on IAC as the stock returned 80.4% in Q2 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.

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