Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industries and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about The Walt Disney Company (NYSE:DIS) and compare its performance to hedge funds' consensus picks in 2019.
The Walt Disney Company (NYSE:DIS) has experienced a decrease in enthusiasm from smart money recently. Nevertheless our calculations also showed that DIS still ranks #10 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_670377" align="alignnone" width="1613"] Aaron Cowen of Suvretta Capital Management[/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. Now let's view the latest hedge fund action encompassing The Walt Disney Company (NYSE:DIS).
How have hedgies been trading The Walt Disney Company (NYSE:DIS)?
At Q3's end, a total of 105 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DIS over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The Walt Disney Company (NYSE:DIS) was held by Yacktman Asset Management, which reported holding $561.3 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $382.9 million position. Other investors bullish on the company included Adage Capital Management, Glenview Capital, and Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position, AlphaOne Capital Partners allocated the biggest weight to The Walt Disney Company (NYSE:DIS), around 13.21% of its 13F portfolio. KG Funds Management is also relatively very bullish on the stock, earmarking 11.58 percent of its 13F equity portfolio to DIS.
Due to the fact that The Walt Disney Company (NYSE:DIS) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there exist a select few hedge funds that slashed their full holdings by the end of the third quarter. It's worth mentioning that Doug Silverman and Alexander Klabin's Senator Investment Group dumped the biggest position of the 750 funds followed by Insider Monkey, comprising about $279.3 million in stock, and Karthik Sarma's SRS Investment Management was right behind this move, as the fund said goodbye to about $164.6 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 8 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to The Walt Disney Company (NYSE:DIS). These stocks are Royal Dutch Shell plc (NYSE:RDS), The Coca-Cola Company (NYSE:KO), Intel Corporation (NASDAQ:INTC), and Chevron Corporation (NYSE:CVX). All of these stocks' market caps are similar to DIS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RDS,29,1386135,-5 KO,50,23639411,2 INTC,58,4800111,15 CVX,48,1775593,4 Average,46.25,7900313,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 46.25 hedge funds with bullish positions and the average amount invested in these stocks was $7900 million. That figure was $4234 million in DIS's case. Intel Corporation (NASDAQ:INTC) is the most popular stock in this table. On the other hand Royal Dutch Shell plc (NYSE:RDS) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks The Walt Disney Company (NYSE:DIS) 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. Hedge funds were also right about betting on DIS, though not to the same extent, as the stock returned 33.6% during the same period and outperformed the market as well. 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.