Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds' moves. In this article, we look at what those funds think of The Liberty SiriusXM Group (NASDAQ:LSXMK) based on that data.
Is The Liberty SiriusXM Group (NASDAQ:LSXMK) a splendid investment now? Hedge funds are turning bullish. The number of bullish hedge fund positions improved by 2 recently. Our calculations also showed that LSXMK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_783421" align="aligncenter" width="473"] Ryan Frick of Dorsal Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind we're going to take a glance at the recent hedge fund action encompassing The Liberty SiriusXM Group (NASDAQ:LSXMK).
What have hedge funds been doing with The Liberty SiriusXM Group (NASDAQ:LSXMK)?
Heading into the fourth quarter of 2019, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LSXMK over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Warren Buffett's Berkshire Hathaway has the number one position in The Liberty SiriusXM Group (NASDAQ:LSXMK), worth close to $1.3046 billion, corresponding to 0.6% of its total 13F portfolio. The second most bullish fund manager is FPR Partners, led by Bob Peck and Andy Raab, holding a $292.5 million position; 6.7% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism contain David E. Shaw's D E Shaw, Ryan Frick and Oliver Evans's Dorsal Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Steel Canyon Capital allocated the biggest weight to The Liberty SiriusXM Group (NASDAQ:LSXMK), around 20.97% of its 13F portfolio. Simcoe Capital Management is also relatively very bullish on the stock, earmarking 7.6 percent of its 13F equity portfolio to LSXMK.
Now, key hedge funds have jumped into The Liberty SiriusXM Group (NASDAQ:LSXMK) headfirst. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the most valuable position in The Liberty SiriusXM Group (NASDAQ:LSXMK). Adage Capital Management had $50.4 million invested in the company at the end of the quarter. Steve Pigott's Fort Baker Capital Management also made a $3.6 million investment in the stock during the quarter. The only other fund with a new position in the stock is Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as The Liberty SiriusXM Group (NASDAQ:LSXMK) but similarly valued. These stocks are Kansas City Southern (NYSE:KSU), Discovery, Inc. (NASDAQ:DISCK), Burlington Stores Inc (NYSE:BURL), and W.R. Berkley Corporation (NYSE:WRB). This group of stocks' market valuations resemble LSXMK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KSU,28,550900,2 DISCK,30,727071,0 BURL,37,1512597,6 WRB,21,337881,-2 Average,29,782112,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $782 million. That figure was $2853 million in LSXMK's case. Burlington Stores Inc (NYSE:BURL) is the most popular stock in this table. On the other hand W.R. Berkley Corporation (NYSE:WRB) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks The Liberty SiriusXM Group (NASDAQ:LSXMK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately LSXMK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LSXMK were disappointed as the stock returned 29.3% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.