Is Lions Gate Entertainment Corporation (NYSE:LGF-A) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy league graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Hedge fund interest in Lions Gate Entertainment Corporation (NYSE:LGF-A) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as IDACORP Inc (NYSE:IDA), Woodward Inc (NASDAQ:WWD), and MSC Industrial Direct Co Inc (NYSE:MSM) to gather more data points.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We’re going to review the new hedge fund action encompassing Lions Gate Entertainment Corporation (NYSE:LGF-A).
What have hedge funds been doing with Lions Gate Entertainment Corporation (NYSE:LGF-A)?
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, no change from the previous quarter. The graph below displays the number of hedge funds with bullish position in LGF-A over the last 13 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.
Among these funds, MHR Fund Management held the most valuable stake in Lions Gate Entertainment Corporation (NYSE:LGF-A), which was worth $368.4 million at the end of the third quarter. On the second spot was Soros Fund Management which amassed $31.9 million worth of shares. Moreover, Marshall Wace LLP, AQR Capital Management, and Nokota Management were also bullish on Lions Gate Entertainment Corporation (NYSE:LGF-A), allocating a large percentage of their portfolios to this stock.
Because Lions Gate Entertainment Corporation (NYSE:LGF-A) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of fund managers that elected to cut their full holdings by the end of the third quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, valued at close to $7.4 million in stock. Nick Niell’s fund, Arrowgrass Capital Partners, also cut its stock, about $2.5 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Lions Gate Entertainment Corporation (NYSE:LGF-A) but similarly valued. We will take a look at IDACORP Inc (NYSE:IDA), Woodward Inc (NASDAQ:WWD), MSC Industrial Direct Co Inc (NYSE:MSM), and Nuance Communications Inc. (NASDAQ:NUAN). This group of stocks’ market caps resemble LGF-A’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IDA | 11 | 182148 | -1 |
| WWD | 14 | 192547 | 2 |
| MSM | 19 | 115118 | -3 |
| NUAN | 20 | 398090 | 0 |
| Average | 16 | 221976 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $222 million. That figure was $476 million in LGF-A’s case. Nuance Communications Inc. (NASDAQ:NUAN) is the most popular stock in this table. On the other hand IDACORP Inc (NYSE:IDA) is the least popular one with only 11 bullish hedge fund positions. Lions Gate Entertainment Corporation (NYSE:LGF-A) 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. In this regard NUAN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
