Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. 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 TiVo Corporation (NASDAQ:TIVO).
TiVo Corporation (NASDAQ:TIVO) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds’ portfolios at the end of the second quarter of 2019. At the end of this article we will also compare TIVO to other stocks including Qiwi PLC (NASDAQ:QIWI), Bluegreen Vacations Corporation (NYSE:BXG), and Cara Therapeutics, Inc. (NASDAQ:CARA) to get a better sense of its popularity. Our calculations also showed that TIVO isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the fresh hedge fund action encompassing TiVo Corporation (NASDAQ:TIVO).
What have hedge funds been doing with TiVo Corporation (NASDAQ:TIVO)?
Heading into the third quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in TIVO a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Lynrock Lake held the most valuable stake in TiVo Corporation (NASDAQ:TIVO), which was worth $26.6 million at the end of the second quarter. On the second spot was Engaged Capital which amassed $18.6 million worth of shares. Moreover, Citadel Investment Group, Renaissance Technologies, and Clearline Capital were also bullish on TiVo Corporation (NASDAQ:TIVO), allocating a large percentage of their portfolios to this stock.
Judging by the fact that TiVo Corporation (NASDAQ:TIVO) has experienced bearish sentiment from the smart money, it’s easy to see that there exists a select few fund managers who were dropping their positions entirely heading into Q3. It’s worth mentioning that Jamie Zimmerman’s Litespeed Management sold off the biggest position of the “upper crust” of funds followed by Insider Monkey, comprising about $10.2 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund cut about $0.9 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 TiVo Corporation (NASDAQ:TIVO). These stocks are Qiwi PLC (NASDAQ:QIWI), Bluegreen Vacations Corporation (NYSE:BXG), Cara Therapeutics, Inc. (NASDAQ:CARA), and Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH). This group of stocks’ market values are closest to TIVO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QIWI | 13 | 105199 | 1 |
| BXG | 6 | 29100 | 0 |
| CARA | 8 | 38902 | 0 |
| DCPH | 15 | 234197 | -2 |
| Average | 10.5 | 101850 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $102 million. That figure was $110 million in TIVO’s case. Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) is the most popular stock in this table. On the other hand Bluegreen Vacations Corporation (NYSE:BXG) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks TiVo Corporation (NASDAQ:TIVO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on TIVO, though not to the same extent, as the stock returned 4.5% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
