While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding News Corporation (NASDAQ:NWS).
News Corporation (NASDAQ:NWS) investors should be aware of an increase in enthusiasm from smart money lately. NWS was in 11 hedge funds' portfolios at the end of the third quarter of 2019. There were 9 hedge funds in our database with NWS positions at the end of the previous quarter. Our calculations also showed that NWS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_375529" align="aligncenter" width="450"] Mario Gabelli of GAMCO Investors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's go over the key hedge fund action encompassing News Corporation (NASDAQ:NWS).
Hedge fund activity in News Corporation (NASDAQ:NWS)
Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from the second quarter of 2019. On the other hand, there were a total of 10 hedge funds with a bullish position in NWS a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in News Corporation (NASDAQ:NWS), which was worth $20 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $4.4 million worth of shares. CQS Cayman LP, Citadel Investment Group, and Adage Capital Management 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 Tensile Capital allocated the biggest weight to News Corporation (NASDAQ:NWS), around 0.22% of its 13F portfolio. CQS Cayman LP is also relatively very bullish on the stock, setting aside 0.12 percent of its 13F equity portfolio to NWS.
As industrywide interest jumped, key money managers have been driving this bullishness. Paloma Partners, managed by Donald Sussman, initiated the largest position in News Corporation (NASDAQ:NWS). Paloma Partners had $0.3 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $0.2 million position during the quarter. The following funds were also among the new NWS investors: Mike Vranos's Ellington and Michael Gelband's ExodusPoint Capital.
Let's go over hedge fund activity in other stocks similar to News Corporation (NASDAQ:NWS). We will take a look at Avantor, Inc. (NYSE:AVTR), The Interpublic Group of Companies, Inc. (NYSE:IPG), Dropbox, Inc. (NASDAQ:DBX), and AEGON N.V. (NYSE:AEG). This group of stocks' market caps match NWS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVTR,26,524476,-4 IPG,24,755230,-8 DBX,38,977930,-5 AEG,6,25903,-3 Average,23.5,570885,-5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $571 million. That figure was $34 million in NWS's case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand AEGON N.V. (NYSE:AEG) is the least popular one with only 6 bullish hedge fund positions. News Corporation (NASDAQ:NWS) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NWS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NWS investors were disappointed as the stock returned -7.9% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.