Green equity investors are generally advised to start their investing activities by pouring some cash in mutual funds, index funds and exchange-traded funds. For example, the Vanguard S&P 500 ETF provides investors an inexpensive and efficient way to get exposure to the entire pool of stocks included in the S&P 500 benchmark. However, analysts and investors believe that 2016 will represent a good year for active management, as there are numerous attractive investment opportunities due to high dispersion. Dispersion measures the average difference between the return of an index and the return of each component of that index. Therefore, high dispersion rates suggest that the disparity between best-performing stocks and worst-performing stocks is quite high, thus creating attractive conditions for stock pickers. This means that passive management is not likely to generate high returns in 2016. But how can individual investors find potential winners? One way to pin down high-potential stocks is to look at which stocks hedge funds like the most. That being said, let’s take a closer look at what the hedge funds tracked by Insider Monkey think about Yahoo! Inc. (NASDAQ:YHOO).
Yahoo! Inc. (NASDAQ:YHOO) investors should be aware of a decrease in support from the world’s most elite money managers in recent months. YHOO was in 84 hedge funds’ portfolios at the end of December. There were 89 hedge funds in our database with YHOO holdings at the end of the previous quarter. 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 Luxottica Group SpA (ADR) (NYSE:LUX), Emerson Electric Co. (NYSE:EMR), and Sony Corporation (ADR) (NYSE:SNE) to gather more data points.
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According to most investors, hedge funds are seen as slow, old financial vehicles of years past. While there are more than 8000 funds trading at the moment, Our researchers look at the crème de la crème of this group, about 700 funds. It is estimated that this group of investors direct most of the hedge fund industry’s total asset base, and by following their highest performing stock picks, Insider Monkey has uncovered many investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points per annum for a decade in their back tests.
Yahoo! Inc. (NASDAQ:YHOO) has seen its shares decline 25% over the past 12 months, mainly due to a sustained decline in the company’s financial performance. The company has been facing pressure from activist investors, including Jeffrey Smith’s Starboard Value, to sell its Internet businesses. In December 2015, the company announced that the Board decided to abandon the spin-off of its holding in Alibaba Group Holding Ltd (NYSE:BABA), as Yahoo would have had to pay huge taxes pursuing this transaction. Earlier this year, activist investor Jeffrey Smith sent a letter to Yahoo! Inc. (NASDAQ:YHOO)’s Chief Executive Officer, Marissa Mayer, Chairman and the rest of the Board, saluting the company’s decision to suspend the previously-proposed spin-off of Yahoo’s stake in Alibaba into Aabaco Holdings, which he fiercely opposed throughout 2015. However, the activist investor seemed to be very frustrated about the operating and financial performance of the company’s core Search and Display advertising businesses. The activist investor said that the value of the “Yahoo Stub”, which is simply defined as Yahoo’s market value less the value of the Alibaba stake, was trading near zero at the beginning of January 2015. Therefore, billionaire Jeffrey Smith urged the company to sell its Core Business to either a strategic or financial buyer. In fact, several interested parties have already approached Yahoo’s management and its Board of Directors expressing their interest in buying the company’s core business.
Keeping this in mind, we’re going to check out the key action encompassing Yahoo! Inc. (NASDAQ:YHOO), as well as discuss other recent developments at the company.
We should have also mentioned that Yahoo! Inc. (NASDAQ:YHOO) also announced plans to undertake a reverse of its previously-announced spin-off transaction, which simply means that the company was planning to spin-off its struggling internet business into a new company. However, Starboard Value stated that the “reverse spin-off” plan would simply mean that Yahoo’s shareholders will have to wait yet another year while “the existing leadership continues to destroy value”. In February 2015, the struggling digital media company announced that its Board of Directors was exploring strategic alternatives alongside its intentions of a reverse spin-off, which means that the activist investor might finally get what he previously sought to achieve.
Hedge fund activity in Yahoo! Inc. (NASDAQ:YHOO)
Heading into 2016, a total of 84 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 6% from the previous quarter. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Luxor Capital Group, managed by Christian Leone, holds the number one position in Yahoo! Inc. (NASDAQ:YHOO). Luxor Capital Group has a $381.2 million position in the stock, comprising 12% of its 13F portfolio. The second largest stake is held by Mason Capital Management, led by Kenneth Mario Garschina, holding a $356.3 million position; the fund has 11.8% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism encompass Ken Griffin’s Citadel Investment Group, Jeffrey Tannenbaum’s Fir Tree and Jeffrey Altman’s Owl Creek Asset Management.
Judging by the fact that Yahoo! Inc. (NASDAQ:YHOO) has experienced falling interest from the aggregate hedge fund industry, we can see that there exists a select few fund managers that slashed their positions entirely by the end of the fourth quarter. At the top of the heap, Masroor Siddiqui and Bruce Emery’s Naya Capital dumped the largest investment of the 700 funds tracked by Insider Monkey, valued at close to $262.8 million in stock. Daniel S. Och’s fund, OZ Management, also said goodbye to its stock, about $252.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by fve funds by the end of the fourth quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Yahoo! Inc. (NASDAQ:YHOO) but similarly valued. These stocks are Luxottica Group SpA (ADR) (NYSE:LUX), Emerson Electric Co. (NYSE:EMR), Sony Corporation (ADR) (NYSE:SNE), and Brookfield Asset Management Inc. (USA) (NYSE:BAM). All of these stocks’ market caps resemble YHOO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LUX | 4 | 60099 | -1 |
| EMR | 29 | 571269 | -5 |
| SNE | 20 | 342413 | -1 |
| BAM | 20 | 1287417 | -3 |
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $565 million. That figure was $5922 million in YHOO’s case. Emerson Electric Co. (NYSE:EMR) is the most popular stock in this table. On the other hand Luxottica Group SpA (ADR) (NYSE:LUX) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Yahoo! Inc. (NASDAQ:YHOO) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None
