How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Sirius XM Holdings Inc (NASDAQ:SIRI).
Sirius XM Holdings Inc (NASDAQ:SIRI) has experienced an increase in hedge fund sentiment in recent months. Sirius XM Holdings Inc (NASDAQ:SIRI) was in 42 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SIRI 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.
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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Stuart Zimmer of Zimmer Partners
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 best artificial intelligence stocks to pick the best growth 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. Keeping this in mind we’re going to analyze the recent hedge fund action surrounding Sirius XM Holdings Inc (NASDAQ:SIRI).
How have hedgies been trading Sirius XM Holdings Inc (NASDAQ:SIRI)?
At second quarter’s end, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SIRI over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Berkshire Hathaway held the most valuable stake in Sirius XM Holdings Inc (NASDAQ:SIRI), which was worth $293.5 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $285.8 million worth of shares. Renaissance Technologies, Arrowstreet Capital, and Zimmer Partners 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 DPM Capital allocated the biggest weight to Sirius XM Holdings Inc (NASDAQ:SIRI), around 0.99% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, dishing out 0.82 percent of its 13F equity portfolio to SIRI.
As one would reasonably expect, key hedge funds were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, established the most valuable position in Sirius XM Holdings Inc (NASDAQ:SIRI). Adage Capital Management had $39.8 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $16.3 million position during the quarter. The other funds with brand new SIRI positions are Dmitry Balyasny’s Balyasny Asset Management, George Soros’s Soros Fund Management, and Seymour Sy Kaufman and Michael Stark’s Crosslink Capital.
Let’s go over hedge fund activity in other stocks similar to Sirius XM Holdings Inc (NASDAQ:SIRI). These stocks are Cummins Inc. (NYSE:CMI), Schlumberger Limited. (NYSE:SLB), Johnson Controls International plc (NYSE:JCI), Fresenius Medical Care AG & Co. (NYSE:FMS), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), RingCentral Inc (NYSE:RNG), and PPG Industries, Inc. (NYSE:PPG). This group of stocks’ market valuations match SIRI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMI | 38 | 358670 | 4 |
| SLB | 53 | 932470 | 4 |
| JCI | 28 | 1099174 | -9 |
| FMS | 6 | 11727 | -4 |
| WLTW | 49 | 2288145 | 6 |
| RNG | 62 | 3647093 | -5 |
| PPG | 36 | 261423 | 1 |
| Average | 38.9 | 1228386 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.9 hedge funds with bullish positions and the average amount invested in these stocks was $1228 million. That figure was $1137 million in SIRI’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. (NYSE:FMS) is the least popular one with only 6 bullish hedge fund positions. Sirius XM Holdings Inc (NASDAQ:SIRI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SIRI is 72.1. 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 SIRI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SIRI were disappointed as the stock returned 2.1% 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.
Follow Sirius Xm Holdings Inc. (NASDAQ:SIRI)
Follow Sirius Xm Holdings Inc. (NASDAQ:SIRI)
Disclosure: None. This article was originally published at Insider Monkey.
