We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in ViaSat, Inc. (NASDAQ:VSAT)? The smart money sentiment can provide an answer to this question.
ViaSat, Inc. (NASDAQ:VSAT) was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2019. VSAT investors should pay attention to a decrease in hedge fund sentiment of late. There were 30 hedge funds in our database with VSAT positions at the end of the previous quarter. Our calculations also showed that VSAT 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Seth Klarman of Baupost Group
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we’re going to analyze the key hedge fund action encompassing ViaSat, Inc. (NASDAQ:VSAT).
Hedge fund activity in ViaSat, Inc. (NASDAQ:VSAT)
At Q4’s end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the third quarter of 2019. By comparison, 19 hedge funds held shares or bullish call options in VSAT a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Baupost Group was the largest shareholder of ViaSat, Inc. (NASDAQ:VSAT), with a stake worth $1005.1 million reported as of the end of September. Trailing Baupost Group was FPR Partners, which amassed a stake valued at $432.7 million. Odey Asset Management Group, Southeastern Asset Management, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Odey Asset Management Group allocated the biggest weight to ViaSat, Inc. (NASDAQ:VSAT), around 11.74% of its 13F portfolio. Baupost Group is also relatively very bullish on the stock, dishing out 11.1 percent of its 13F equity portfolio to VSAT.
Since ViaSat, Inc. (NASDAQ:VSAT) has faced falling interest from the smart money, it’s safe to say that there was a specific group of fund managers that elected to cut their entire stakes in the third quarter. Interestingly, Matthew Hulsizer’s PEAK6 Capital Management said goodbye to the biggest investment of the 750 funds followed by Insider Monkey, worth about $2.7 million in stock. Minhua Zhang’s fund, Weld Capital Management, also dropped its stock, about $2.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ViaSat, Inc. (NASDAQ:VSAT) but similarly valued. We will take a look at Landstar System, Inc. (NASDAQ:LSTR), Immunomedics, Inc. (NASDAQ:IMMU), NCR Corporation (NYSE:NCR), and Cushman & Wakefield plc (NYSE:CWK). This group of stocks’ market values are similar to VSAT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LSTR | 24 | 196876 | 2 |
| IMMU | 28 | 829753 | 6 |
| NCR | 32 | 289779 | -2 |
| CWK | 18 | 216049 | 8 |
| Average | 25.5 | 383114 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $383 million. That figure was $1810 million in VSAT’s case. NCR Corporation (NYSE:NCR) is the most popular stock in this table. On the other hand Cushman & Wakefield plc (NYSE:CWK) is the least popular one with only 18 bullish hedge fund positions. ViaSat, Inc. (NASDAQ:VSAT) 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. 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 VSAT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on VSAT were disappointed as the stock returned -47.5% 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 many of these stocks already outperformed the market so far this year.
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.
