Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Graham Holdings Co (NYSE:GHC).
Graham Holdings Co (NYSE:GHC) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds’ portfolios at the end of the fourth quarter of 2019. 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 Taro Pharmaceutical Industries Ltd. (NYSE:TARO), Inphi Corporation (NYSE:IPHI), and Watts Water Technologies Inc (NYSE:WTS) to gather more data points. Our calculations also showed that GHC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the eyes of most market participants, hedge funds are seen as underperforming, outdated investment tools of the past. While there are greater than 8000 funds trading at present, We choose to focus on the crème de la crème of this group, around 850 funds. These investment experts preside over bulk of the hedge fund industry’s total capital, and by paying attention to their top picks, Insider Monkey has unearthed many investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Mason Hawkins of Southeastern Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the new hedge fund action regarding Graham Holdings Co (NYSE:GHC).
How are hedge funds trading Graham Holdings Co (NYSE:GHC)?
At Q4’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GHC over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in Graham Holdings Co (NYSE:GHC) was held by Southeastern Asset Management, which reported holding $293.7 million worth of stock at the end of September. It was followed by AQR Capital Management with a $107.3 million position. Other investors bullish on the company included Wallace Capital Management, Winton Capital Management, and GLG Partners. In terms of the portfolio weights assigned to each position Wallace Capital Management allocated the biggest weight to Graham Holdings Co (NYSE:GHC), around 10.04% of its 13F portfolio. Southeastern Asset Management is also relatively very bullish on the stock, earmarking 4.89 percent of its 13F equity portfolio to GHC.
Since Graham Holdings Co (NYSE:GHC) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of money managers that slashed their full holdings heading into Q4. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling close to $3.3 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund said goodbye to about $0.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Graham Holdings Co (NYSE:GHC). These stocks are Taro Pharmaceutical Industries Ltd. (NYSE:TARO), Inphi Corporation (NYSE:IPHI), Watts Water Technologies Inc (NYSE:WTS), and UMB Financial Corporation (NASDAQ:UMBF). This group of stocks’ market caps match GHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TARO | 12 | 83139 | 1 |
| IPHI | 31 | 449813 | 0 |
| WTS | 19 | 309415 | -5 |
| UMBF | 19 | 81425 | 3 |
| Average | 20.25 | 230948 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $231 million. That figure was $510 million in GHC’s case. Inphi Corporation (NYSE:IPHI) is the most popular stock in this table. On the other hand Taro Pharmaceutical Industries Ltd. (NYSE:TARO) is the least popular one with only 12 bullish hedge fund positions. Graham Holdings Co (NYSE:GHC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately GHC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GHC investors were disappointed as the stock returned -46.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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.
