Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about News Corp (NASDAQ:NWSA) and compare its performance to hedge funds’ consensus picks in 2019.
News Corp (NASDAQ:NWSA) shareholders have witnessed an increase in hedge fund interest recently. Our calculations also showed that NWSA isn’t 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.
Donald Yacktman of Yacktman Asset Management
We leave no stone unturned when looking for the next great investment idea. For example 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. 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 is still extremely cheap despite already gaining 20 percent. Keeping this in mind we’re going to view the key hedge fund action encompassing News Corp (NASDAQ:NWSA).
How have hedgies been trading News Corp (NASDAQ:NWSA)?
Heading into the fourth quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 30% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NWSA over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Yacktman Asset Management, managed by Donald Yacktman, holds the most valuable position in News Corp (NASDAQ:NWSA). Yacktman Asset Management has a $155 million position in the stock, comprising 1.9% of its 13F portfolio. On Yacktman Asset Management’s heels is International Value Advisers, managed by Charles de Vaulx, which holds a $86.6 million position; 3.2% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish comprise Cliff Asness’s AQR Capital Management, Dmitry Balyasny’s Balyasny Asset Management and David E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Solas Capital Management allocated the biggest weight to News Corp (NASDAQ:NWSA), around 12.1% of its 13F portfolio. International Value Advisers is also relatively very bullish on the stock, setting aside 3.21 percent of its 13F equity portfolio to NWSA.
Now, key hedge funds have been driving this bullishness. Corsair Capital Management, managed by Jay Petschek and Steven Major, created the biggest position in News Corp (NASDAQ:NWSA). Corsair Capital Management had $6.2 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also made a $1.2 million investment in the stock during the quarter. The other funds with brand new NWSA positions are Sander Gerber’s Hudson Bay Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Michael Gelband’s ExodusPoint Capital.
Let’s also examine hedge fund activity in other stocks similar to News Corp (NASDAQ:NWSA). We will take a look at Coupa Software Incorporated (NASDAQ:COUP), Companhia de Saneamento Basico (NYSE:SBS), Ubiquiti Inc. (NYSE:UI), and Zendesk Inc (NYSE:ZEN). All of these stocks’ market caps resemble NWSA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| COUP | 55 | 2562874 | -2 |
| SBS | 11 | 372148 | -1 |
| UI | 16 | 182015 | -1 |
| ZEN | 44 | 1453964 | -6 |
| Average | 31.5 | 1142750 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1143 million. That figure was $429 million in NWSA’s case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico (NYSE:SBS) is the least popular one with only 11 bullish hedge fund positions. News Corp (NASDAQ:NWSA) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately NWSA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NWSA investors were disappointed as the stock returned 25.2% in 2019 (as of 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
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.
