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 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2018) generated a return of 15.1% during the same 12-month period, with 53% 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’ 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 Tegna Inc (NYSE:TGNA).
Is Tegna Inc (NYSE:TGNA) ready to rally soon? Investors who are in the know are turning bullish. The number of long hedge fund positions rose by 6 recently. Our calculations also showed that TGNA isn’t among the 30 most popular stocks among hedge funds. TGNA was in 23 hedge funds’ portfolios at the end of September. There were 17 hedge funds in our database with TGNA holdings at the end of the previous quarter.
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.
Cliff Asness of AQR Capital Management
We’re going to take a peek at the latest hedge fund action surrounding Tegna Inc (NYSE:TGNA).
What does the smart money think about Tegna Inc (NYSE:TGNA)?
Heading into the fourth quarter of 2018, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 35% from the second quarter of 2018. By comparison, 28 hedge funds held shares or bullish call options in TGNA heading into this year. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in Tegna Inc (NYSE:TGNA) was held by Ariel Investments, which reported holding $118.2 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $104.8 million position. Other investors bullish on the company included AQR Capital Management, Cove Street Capital, and HG Vora Capital Management.
Consequently, key money managers were leading the bulls’ herd. HG Vora Capital Management, managed by Parag Vora, created the largest position in Tegna Inc (NYSE:TGNA). HG Vora Capital Management had $35.9 million invested in the company at the end of the quarter. Andy Redleaf’s Whitebox Advisors also made a $1 million investment in the stock during the quarter. The following funds were also among the new TGNA investors: Michael Platt and William Reeves’s BlueCrest Capital Mgmt., Ken Griffin’s Citadel Investment Group, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Tegna Inc (NYSE:TGNA) but similarly valued. We will take a look at Viavi Solutions Inc (NASDAQ:VIAV), Newmark Group, Inc. (NASDAQ:NMRK), Albany International Corp. (NYSE:AIN), and Realogy Holdings Corp (NYSE:RLGY). All of these stocks’ market caps resemble TGNA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VIAV | 22 | 224277 | -7 |
| NMRK | 17 | 69578 | 7 |
| AIN | 13 | 91570 | 6 |
| RLGY | 23 | 722694 | 4 |
| Average | 18.75 | 277030 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $277 million. That figure was $403 million in TGNA’s case. Realogy Holdings Corp (NYSE:RLGY) is the most popular stock in this table. On the other hand Albany International Corp. (NYSE:AIN) is the least popular one with only 13 bullish hedge fund positions. Tegna Inc (NYSE:TGNA) 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 RLGY might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
