Were Hedge Funds Right About ViacomCBS Inc. (VIAC)?

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 ViacomCBS Inc. (NASDAQ:VIAC) and determine whether hedge funds had an edge regarding this stock.

ViacomCBS Inc. (NASDAQ:VIAC) shareholders have witnessed a decrease in enthusiasm from smart money of late. VIAC was in 54 hedge funds’ portfolios at the end of the first quarter of 2020. There were 64 hedge funds in our database with VIAC positions at the end of the previous quarter. Our calculations also showed that VIAC 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).

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 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 S&P 500 ETFs by 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 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.


Larry Robbins of Glenview Capital

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 view the fresh hedge fund action regarding ViacomCBS Inc. (NASDAQ:VIAC).

How are hedge funds trading ViacomCBS Inc. (NASDAQ:VIAC)?

At Q1’s end, a total of 54 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from one quarter earlier. On the other hand, there were a total of 38 hedge funds with a bullish position in VIAC a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, Baupost Group was the largest shareholder of ViacomCBS Inc. (NASDAQ:VIAC), with a stake worth $315.2 million reported as of the end of September. Trailing Baupost Group was Glenview Capital, which amassed a stake valued at $130.1 million. Ariel Investments, Paulson & Co, and AQR Capital Management 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 Meru Capital allocated the biggest weight to ViacomCBS Inc. (NASDAQ:VIAC), around 5.27% of its 13F portfolio. Baupost Group is also relatively very bullish on the stock, dishing out 4.65 percent of its 13F equity portfolio to VIAC.

Since ViacomCBS Inc. (NASDAQ:VIAC) has witnessed declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of fund managers that decided to sell off their entire stakes heading into Q4. Interestingly, Brett Barakett’s Tremblant Capital sold off the biggest stake of the 750 funds monitored by Insider Monkey, comprising about $154.9 million in stock. Dan Loeb’s fund, Third Point, also cut its stock, about $115.4 million worth. These transactions are interesting, as total hedge fund interest dropped by 10 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as ViacomCBS Inc. (NASDAQ:VIAC) but similarly valued. These stocks are Regions Financial Corporation (NYSE:RF), Universal Health Services, Inc. (NYSE:UHS), EXACT Sciences Corporation (NASDAQ:EXAS), and Allegion plc (NYSE:ALLE). This group of stocks’ market valuations are closest to VIAC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RF 37 235284 0
UHS 30 443724 -1
EXAS 34 514351 -7
ALLE 31 404344 6
Average 33 399426 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $399 million. That figure was $953 million in VIAC’s case. Regions Financial Corporation (NYSE:RF) is the most popular stock in this table. On the other hand Universal Health Services, Inc. (NYSE:UHS) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks ViacomCBS Inc. (NASDAQ:VIAC) 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 VIAC as the stock returned 66.5% 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.