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 IAC/InterActiveCorp (NASDAQ:IAC)? The smart money sentiment can provide an answer to this question.
Is IAC/InterActiveCorp (NASDAQ:IAC) a safe stock to buy now? The best stock pickers are getting less bullish. The number of long hedge fund positions dropped by 4 recently. Our calculations also showed that IAC isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the latest hedge fund action surrounding IAC/InterActiveCorp (NASDAQ:IAC).
How have hedgies been trading IAC/InterActiveCorp (NASDAQ:IAC)?
At the end of the second quarter, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the first quarter of 2019. By comparison, 51 hedge funds held shares or bullish call options in IAC a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Cadian Capital was the largest shareholder of IAC/InterActiveCorp (NASDAQ:IAC), with a stake worth $296.5 million reported as of the end of March. Trailing Cadian Capital was Marcato Capital Management, which amassed a stake valued at $189.2 million. AQR Capital Management, Samlyn Capital, and SQN Investors were also very fond of the stock, giving the stock large weights in their portfolios.
Because IAC/InterActiveCorp (NASDAQ:IAC) has experienced a decline in interest from the smart money, it’s easy to see that there is a sect of hedgies that decided to sell off their positions entirely in the second quarter. At the top of the heap, Alexander Mitchell’s Scopus Asset Management sold off the largest investment of all the hedgies followed by Insider Monkey, comprising close to $83.6 million in stock. Robert Henry Lynch’s fund, Aristeia Capital, also cut its stock, about $79.8 million worth. These transactions are interesting, as total hedge fund interest dropped by 4 funds in the second quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as IAC/InterActiveCorp (NASDAQ:IAC) but similarly valued. These stocks are Liberty Broadband Corp (NASDAQ:LBRDA), Amcor plc (NYSE:AMCR), Ameren Corporation (NYSE:AEE), and POSCO (NYSE:PKX). All of these stocks’ market caps are similar to IAC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LBRDA | 20 | 633003 | 1 |
| AMCR | 12 | 157102 | 12 |
| AEE | 18 | 738905 | -3 |
| PKX | 12 | 55467 | 1 |
| Average | 15.5 | 396119 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $396 million. That figure was $1728 million in IAC’s case. Liberty Broadband Corp (NASDAQ:LBRDA) is the most popular stock in this table. On the other hand Amcor plc (NYSE:AMCR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks IAC/InterActiveCorp (NASDAQ:IAC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately IAC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IAC were disappointed as the stock returned 0.2% during the third quarter 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
