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Did Hedge Funds Drop The Ball On J2 Global Inc (JCOM) ?

Nina Todic

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards J2 Global Inc (NASDAQ:JCOM) to find out whether it was one of their high conviction long-term ideas.

J2 Global Inc (NASDAQ:JCOM) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds' portfolios at the end of December. At the end of this article we will also compare JCOM to other stocks including Laureate Education, Inc. (NASDAQ:LAUR), American Eagle Outfitters Inc. (NYSE:AEO), and Nu Skin Enterprises, Inc. (NYSE:NUS) to get a better sense of its popularity.

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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Let's analyze the fresh hedge fund action regarding J2 Global Inc (NASDAQ:JCOM).

What have hedge funds been doing with J2 Global Inc (NASDAQ:JCOM)?

Heading into the first quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in JCOM 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.

No of Hedge Funds With JCOM Positions

Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the number one position in J2 Global Inc (NASDAQ:JCOM). AQR Capital Management has a $54.6 million position in the stock, comprising 0.1% of its 13F portfolio. On AQR Capital Management's heels is Amy Minella of Cardinal Capital, with a $46.4 million position; the fund has 1.7% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass Chuck Royce's Royce & Associates, D. E. Shaw's D E Shaw and Noam Gottesman's GLG Partners.

Because J2 Global Inc (NASDAQ:JCOM) has witnessed falling interest from the smart money, it's safe to say that there lies a certain "tier" of hedge funds that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, Howard Marks's Oaktree Capital Management sold off the biggest position of all the hedgies monitored by Insider Monkey, totaling close to $20 million in stock, and Clint Carlson's Carlson Capital was right behind this move, as the fund sold off about $17.5 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's go over hedge fund activity in other stocks similar to J2 Global Inc (NASDAQ:JCOM). These stocks are Laureate Education, Inc. (NASDAQ:LAUR), American Eagle Outfitters Inc. (NYSE:AEO), Nu Skin Enterprises, Inc. (NYSE:NUS), and Wright Medical Group N.V. (NASDAQ:WMGI). This group of stocks' market values match JCOM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LAUR,24,273657,4 AEO,27,401197,1 NUS,24,228123,6 WMGI,33,822338,-2 Average,27,431329,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $431 million. That figure was $203 million in JCOM's case. Wright Medical Group N.V. (NASDAQ:WMGI) is the most popular stock in this table. On the other hand Laureate Education, Inc. (NASDAQ:LAUR) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks J2 Global Inc (NASDAQ:JCOM) is even less popular than LAUR. Hedge funds clearly dropped the ball on JCOM as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on JCOM as the stock returned 28.7% and outperformed the market by an even larger margin.

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

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