Was The Smart Money Right About The Liberty SiriusXM Group (LSXMA)?

In this article you are going to find out whether hedge funds think The Liberty SiriusXM Group (NASDAQ:LSXMA) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is The Liberty SiriusXM Group (NASDAQ:LSXMA) a buy right now? Hedge funds were becoming less hopeful. The number of long hedge fund positions decreased by 2 recently. The Liberty SiriusXM Group (NASDAQ:LSXMA) was in 46 hedge funds’ portfolios at the end of June. The all time high for this statistics is 50. Our calculations also showed that LSXMA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 56 percentage points since March 2017 (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.

Michael Lowenstein of Kensico Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a glance at the key hedge fund action regarding The Liberty SiriusXM Group (NASDAQ:LSXMA).

What have hedge funds been doing with The Liberty SiriusXM Group (NASDAQ:LSXMA)?

At the end of June, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in LSXMA a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

The largest stake in The Liberty SiriusXM Group (NASDAQ:LSXMA) was held by Berkshire Hathaway, which reported holding $513 million worth of stock at the end of September. It was followed by D E Shaw with a $146 million position. Other investors bullish on the company included Citadel Investment Group, Nitorum Capital, and FPR Partners. In terms of the portfolio weights assigned to each position Raging Capital Management allocated the biggest weight to The Liberty SiriusXM Group (NASDAQ:LSXMA), around 10.08% of its 13F portfolio. Kingstown Capital Management is also relatively very bullish on the stock, earmarking 5.69 percent of its 13F equity portfolio to LSXMA.

Since The Liberty SiriusXM Group (NASDAQ:LSXMA) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds that slashed their full holdings last quarter. It’s worth mentioning that Seth Klarman’s Baupost Group said goodbye to the largest position of all the hedgies followed by Insider Monkey, valued at close to $19.8 million in stock, and Mitch Kuflik and Rob Sobel’s Brahman Capital was right behind this move, as the fund dropped about $12.6 million worth. These moves are important to note, as total hedge fund interest dropped by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Liberty SiriusXM Group (NASDAQ:LSXMA) but similarly valued. These stocks are Western Digital Corporation (NASDAQ:WDC), MongoDB, Inc. (NASDAQ:MDB), Tradeweb Markets Inc. (NASDAQ:TW), Mid America Apartment Communities Inc (NYSE:MAA), Liberty Global plc (NASDAQ:LBTYA), International Flavors & Fragrances Inc (NYSE:IFF), and Duke Realty Corporation (NYSE:DRE). All of these stocks’ market caps are closest to LSXMA’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.6 hedge funds with bullish positions and the average amount invested in these stocks was $581 million. That figure was $1295 million in LSXMA’s case. Western Digital Corporation (NASDAQ:WDC) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 19 bullish hedge fund positions. The Liberty SiriusXM Group (NASDAQ:LSXMA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LSXMA is 75.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately LSXMA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LSXMA were disappointed as the stock returned 7.4% since the end of June (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.