It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Comcast Corporation (NASDAQ:CMCSA).
Comcast Corporation (NASDAQ:CMCSA) was in 82 hedge funds’ portfolios at the end of the third quarter of 2019. CMCSA shareholders have witnessed a decrease in enthusiasm from smart money in recent months. There were 86 hedge funds in our database with CMCSA positions at the end of the previous quarter. Our calculations also showed that CMCSA currently ranks 22nd among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
Boykin Curry of Eagle Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s check out the recent hedge fund action surrounding Comcast Corporation (NASDAQ:CMCSA).
Hedge fund activity in Comcast Corporation (NASDAQ:CMCSA)
At Q3’s end, a total of 82 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. By comparison, 92 hedge funds held shares or bullish call options in CMCSA 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.
The largest stake in Comcast Corporation (NASDAQ:CMCSA) was held by Eagle Capital Management, which reported holding $1534.7 million worth of stock at the end of September. It was followed by First Pacific Advisors with a $473.5 million position. Other investors bullish on the company included Arrowstreet Capital, AQR Capital Management, and BlueSpruce Investments. In terms of the portfolio weights assigned to each position BlueDrive Global Investors allocated the biggest weight to Comcast Corporation (NASDAQ:CMCSA), around 16.52% of its 13F portfolio. 3G Capital is also relatively very bullish on the stock, earmarking 15.87 percent of its 13F equity portfolio to CMCSA.
Because Comcast Corporation (NASDAQ:CMCSA) has experienced bearish sentiment from the smart money, it’s easy to see that there is a sect of fund managers who were dropping their positions entirely in the third quarter. It’s worth mentioning that Renaissance Technologies dumped the largest stake of the “upper crust” of funds followed by Insider Monkey, totaling about $207.3 million in stock. Aaron Cowen’s fund, Suvretta Capital Management, also said goodbye to its stock, about $87.6 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Comcast Corporation (NASDAQ:CMCSA) but similarly valued. We will take a look at Novartis AG (NYSE:NVS), Pfizer Inc. (NYSE:PFE), PepsiCo, Inc. (NASDAQ:PEP), and Toyota Motor Corporation (NYSE:TM). This group of stocks’ market valuations match CMCSA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NVS | 28 | 1708118 | -2 |
| PFE | 55 | 3767946 | 3 |
| PEP | 57 | 3744859 | 2 |
| TM | 11 | 243035 | 3 |
| Average | 37.75 | 2365990 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.75 hedge funds with bullish positions and the average amount invested in these stocks was $2366 million. That figure was $6385 million in CMCSA’s case. PepsiCo, Inc. (NASDAQ:PEP) 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. Compared to these stocks Comcast Corporation (NASDAQ:CMCSA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on CMCSA, though not to the same extent, as the stock returned 31.4% during the same period and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
