Should You Follow the Smart Money Out of TiVo Corp (TIVO)?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

TiVo Corp (NASDAQ:TIVO) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. 22 hedge funds that we track were long the stock on September 30. There were 25 hedge funds in our database with TIVO 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 Choice Hotels International, Inc. (NYSE:CHH), QTS Realty Trust Inc (NYSE:QTS), and LifePoint Hospitals, Inc. (NASDAQ:LPNT) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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How have hedgies been trading TiVo Corp (NASDAQ:TIVO)?

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 12% from one quarter earlier. The graph below displays the number of hedge funds with bullish positions in TIVO over the last 5 quarters, which peaked at the end of Q1 and has fallen by nearly 25% since. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Richard Driehaus’ Driehaus Capital has the biggest position in TiVo Corp (NASDAQ:TIVO), worth close to $95.2 million, amounting to 3.2% of its total 13F portfolio. Sitting at the No. 2 spot is Fir Tree, founded by Jeffrey Tannenbaum, holding an $81.9 million position; 3.5% of its 13F portfolio is allocated to the company. Other peers that hold long positions encompass George Soros’ Soros Fund Management, Glenn W. Welling’s Engaged Capital, and Jim Simons’ Renaissance Technologies. We should note that Soros Fund Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Seeing as TiVo Corp (NASDAQ:TIVO) has gone through bearish sentiment from the smart money, it’s safe to say that there exists a select few fund managers who sold off their full holdings heading into Q4. It’s worth mentioning that John Orrico’s Water Island Capital cashed in the biggest investment of all the investors watched by Insider Monkey, worth close to $62 million in stock.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as TiVo Corp (NASDAQ:TIVO) but similarly valued. We will take a look at Choice Hotels International, Inc. (NYSE:CHH), QTS Realty Trust Inc (NYSE:QTS), LifePoint Hospitals, Inc. (NASDAQ:LPNT), and Wright Medical Group Inc (NASDAQ:WMGI). This group of stocks’ market caps are similar to TIVO’s market cap.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $266 million. That figure was $415 million in TIVO’s case. Wright Medical Group Inc (NASDAQ:WMGI) is the most popular stock in this table. On the other hand Choice Hotels International, Inc. (NYSE:CHH) is the least popular one with only 15 bullish hedge fund positions. TiVo Corp (NASDAQ:TIVO) 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. In this regard WMGI might be a better candidate to consider taking a long position in.

Disclosure: None