Were Hedge Funds Right About ViacomCBS Inc. (VIAC)?

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 ViacomCBS Inc. (NASDAQ:VIAC)? The smart money sentiment can provide an answer to this question.

ViacomCBS Inc. (NASDAQ:VIAC) has seen a decrease in enthusiasm from smart money lately. ViacomCBS Inc. (NASDAQ:VIAC) was in 45 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 64. Our calculations also showed that VIAC 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Seth Klarman of Baupost Group

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. Keeping this in mind we’re going to take a glance at the recent hedge fund action surrounding ViacomCBS Inc. (NASDAQ:VIAC).

What does smart money think about ViacomCBS Inc. (NASDAQ:VIAC)?

At the end of the second quarter, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VIAC over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Baupost Group, managed by Seth Klarman, holds the number one position in ViacomCBS Inc. (NASDAQ:VIAC). Baupost Group has a $439.3 million position in the stock, comprising 5.5% of its 13F portfolio. Sitting at the No. 2 spot is Ariel Investments, led by John W. Rogers, holding a $141.2 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of Larry Robbins’s Glenview Capital, Stephen Mildenhall’s Contrarius Investment Management and Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors. In terms of the portfolio weights assigned to each position Contrarius Investment Management allocated the biggest weight to ViacomCBS Inc. (NASDAQ:VIAC), around 7.23% of its 13F portfolio. Alden Global Capital is also relatively very bullish on the stock, dishing out 6.45 percent of its 13F equity portfolio to VIAC.

Seeing as ViacomCBS Inc. (NASDAQ:VIAC) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of fund managers that decided to sell off their full holdings in the second quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the largest position of the 750 funds watched by Insider Monkey, comprising an estimated $28.1 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund sold off about $10.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 9 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 ViacomCBS Inc. (NASDAQ:VIAC) but similarly valued. We will take a look at GSX Techedu Inc. (NYSE:GSX), Zscaler, Inc. (NASDAQ:ZS), Kansas City Southern (NYSE:KSU), Jack Henry & Associates, Inc. (NASDAQ:JKHY), Roku, Inc. (NASDAQ:ROKU), Boston Properties, Inc. (NYSE:BXP), and EPAM Systems Inc (NYSE:EPAM). All of these stocks’ market caps are closest to VIAC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $428 million. That figure was $1153 million in VIAC’s case. Kansas City Southern (NYSE:KSU) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 13 bullish hedge fund positions. ViacomCBS Inc. (NASDAQ:VIAC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VIAC is 64.2. 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. 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 still beat the market by 21 percentage points. Hedge funds were also right about betting on VIAC as the stock returned 26.6% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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