Were Hedge Funds Right About Dumping Fox Corporation (FOXA)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 823 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Fox Corporation (NASDAQ:FOXA) in this article.

Fox Corporation (NASDAQ:FOXA) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Fox Corporation (NASDAQ:FOXA) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 78. Our calculations also showed that FOXA 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.

Seth Klarman of Baupost Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 biggest insurance companies to identify fast growing companies in various industries. 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 gander at the recent hedge fund action surrounding Fox Corporation (NASDAQ:FOXA).

How are hedge funds trading Fox Corporation (NASDAQ:FOXA)?

At the end of the second quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. By comparison, 60 hedge funds held shares or bullish call options in FOXA a year ago. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Seth Klarman’s Baupost Group has the number one position in Fox Corporation (NASDAQ:FOXA), worth close to $732.8 million, corresponding to 9.1% of its total 13F portfolio. The second largest stake is held by  Renaissance Technologies, with a $275.1 million position; 0.2% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions encompass Donald Yacktman’s Yacktman Asset Management, Brett Barakett’s Tremblant Capital and Munir Javeri’s 3G Sahana Capital Management. In terms of the portfolio weights assigned to each position 3G Sahana Capital Management allocated the biggest weight to Fox Corporation (NASDAQ:FOXA), around 11.92% of its 13F portfolio. Baupost Group is also relatively very bullish on the stock, dishing out 9.15 percent of its 13F equity portfolio to FOXA.

Because Fox Corporation (NASDAQ:FOXA) has faced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few funds who were dropping their entire stakes in the second quarter. At the top of the heap, Mitch Kuflik and Rob Sobel’s Brahman Capital said goodbye to the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $56.6 million in stock, and Farhad Nanji and Michael DeMichele’s MFN Partners was right behind this move, as the fund dumped about $52.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds in the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Fox Corporation (NASDAQ:FOXA) but similarly valued. These stocks are Maxim Integrated Products Inc. (NASDAQ:MXIM), Laboratory Corp. of America Holdings (NYSE:LH), Amcor plc (NYSE:AMCR), Pioneer Natural Resources Company (NYSE:PXD), Bilibili Inc. (NASDAQ:BILI), Hess Corporation (NYSE:HES), and Take-Two Interactive Software, Inc. (NASDAQ:TTWO). This group of stocks’ market caps are closest to FOXA’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.3 hedge funds with bullish positions and the average amount invested in these stocks was $796 million. That figure was $1612 million in FOXA’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Amcor plc (NYSE:AMCR) is the least popular one with only 16 bullish hedge fund positions. Fox Corporation (NASDAQ:FOXA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FOXA is 36.6. 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 negative signal and 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 23% in 2020 through October 30th and surpassed the market again by 20.1 percentage points. Unfortunately FOXA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); FOXA investors were disappointed as the stock returned -0.3% since the end of June (through 10/30) 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 most of these stocks already outperformed the market in 2020.

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