Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 30 stock picks outperformed the S&P 500 Index by 4 percentage points through the middle of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Sirius XM Holdings Inc (NASDAQ:SIRI) has seen a decrease in enthusiasm from smart money of late. SIRI was in 24 hedge funds’ portfolios at the end of September. There were 26 hedge funds in our database with SIRI holdings at the end of the previous quarter. Our calculations also showed that SIRI isn’t among the 30 most popular stocks among hedge funds.
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 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.
We’re going to take a peek at the latest hedge fund action encompassing Sirius XM Holdings Inc (NASDAQ:SIRI).
How are hedge funds trading Sirius XM Holdings Inc (NASDAQ:SIRI)?
Heading into the fourth quarter of 2018, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the second quarter of 2018. By comparison, 20 hedge funds held shares or bullish call options in SIRI heading into this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Berkshire Hathaway, managed by Warren Buffett, holds the number one position in Sirius XM Holdings Inc (NASDAQ:SIRI). Berkshire Hathaway has a $871.6 million position in the stock, comprising 0.4% of its 13F portfolio. On Berkshire Hathaway’s heels is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $259.3 million position; 0.6% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions comprise Jim Simons’s Renaissance Technologies, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group.
Because Sirius XM Holdings Inc (NASDAQ:SIRI) has witnessed bearish sentiment from hedge fund managers, logic holds that there lies a certain “tier” of hedge funds that decided to sell off their full holdings last quarter. At the top of the heap, Mitch Kuflik and Rob Sobel’s Brahman Capital dropped the largest investment of the 700 funds tracked by Insider Monkey, valued at an estimated $122.9 million in stock. Jeffrey Tannenbaum’s fund, Fir Tree, also said goodbye to its stock, about $40.6 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sirius XM Holdings Inc (NASDAQ:SIRI) but similarly valued. We will take a look at O’Reilly Automotive Inc (NASDAQ:ORLY), ONEOK, Inc. (NYSE:OKE), Chunghwa Telecom Co., Ltd (NYSE:CHT), and MPLX LP (NYSE:MPLX). This group of stocks’ market values match SIRI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ORLY | 43 | 2035471 | 3 |
| OKE | 31 | 517916 | 6 |
| CHT | 4 | 116137 | -1 |
| MPLX | 11 | 355115 | -1 |
| Average | 22.25 | 756160 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $756 million. That figure was $1.28 billion in SIRI’s case. O’Reilly Automotive Inc (NASDAQ:ORLY) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 4 bullish hedge fund positions. Sirius XM Holdings Inc (NASDAQ:SIRI) 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 ORLY might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
