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Were Hedge Funds Right About Souring On News Corp (NWSA)?

Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.

News Corp (NASDAQ:NWSA) was in 23 hedge funds’ portfolios at the end of December. NWSA has seen a decrease in hedge fund interest lately. There were 30 hedge funds in our database with NWSA positions at the end of the previous quarter. Our calculations also showed that NWSA isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital

Let’s take a gander at the recent hedge fund action surrounding News Corp (NASDAQ:NWSA).

How are hedge funds trading News Corp (NASDAQ:NWSA)?

Heading into the first quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in NWSA a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

NWSA

Of the funds tracked by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the number one position in News Corp (NASDAQ:NWSA), worth close to $258.1 million, comprising 1.5% of its total 13F portfolio. Coming in second is International Value Advisers, managed by Charles de Vaulx, which holds a $164.4 million position; 5% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish comprise D. E. Shaw’s D E Shaw, Cliff Asness’s AQR Capital Management and Douglas Dossey and Arthur Young’s Tensile Capital.

Due to the fact that News Corp (NASDAQ:NWSA) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few fund managers that slashed their positions entirely heading into Q3. Interestingly, Sander Gerber’s Hudson Bay Capital Management dropped the largest position of the 700 funds watched by Insider Monkey, valued at about $9.2 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also said goodbye to its stock, about $8.4 million worth. These moves are interesting, as total hedge fund interest was cut by 7 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to News Corp (NASDAQ:NWSA). We will take a look at RingCentral Inc (NYSE:RNG), DocuSign, Inc. (NASDAQ:DOCU), Public Joint-Stock Company Mobile TeleSystems (NYSE:MBT), and Nice Systems Ltd (NASDAQ:NICE). This group of stocks’ market caps are similar to NWSA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RNG 48 988782 6
DOCU 23 293888 -14
MBT 12 233104 1
NICE 15 192932 1
Average 24.5 427177 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $427 million. That figure was $559 million in NWSA’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Public Joint-Stock Company Mobile TeleSystems (NYSE:MBT) is the least popular one with only 12 bullish hedge fund positions. News Corp (NASDAQ:NWSA) is not the least popular stock in this group but hedge fund interest is still below average. 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately NWSA wasn’t in this group. Hedge funds that bet on NWSA were disappointed as the stock returned 12.3% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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