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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Fox Corporation (NASDAQ:FOXA).
Fox Corporation (NASDAQ:FOXA) investors should pay attention to a decrease in hedge fund sentiment of late. Fox Corporation (NASDAQ:FOXA) was in 35 hedge funds' portfolios at the end of June. The all time high for this statistic is 78. There were 38 hedge funds in our database with FOXA holdings at the end of March. Our calculations also showed that FOXA isn't among the 30 most popular stocks among hedge funds (click 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 S&P 500 ETFs by 79 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 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.
Steven Tananbaum of GoldenTree Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to analyze the key hedge fund action encompassing Fox Corporation (NASDAQ:FOXA).
Do Hedge Funds Think FOXA Is A Good Stock To Buy Now?
At second quarter's end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. By comparison, 35 hedge funds held shares or bullish call options in FOXA a year ago. So, let's review 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, Yacktman Asset Management, managed by Donald Yacktman, holds the biggest position in Fox Corporation (NASDAQ:FOXA). Yacktman Asset Management has a $102.1 million position in the stock, comprising 1% of its 13F portfolio. Coming in second is Paul Marshall and Ian Wace of Marshall Wace LLP, with a $61.4 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining peers with similar optimism comprise Brandon Haley's Holocene Advisors, Steven Tananbaum's GoldenTree Asset Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position Zeno Research allocated the biggest weight to Fox Corporation (NASDAQ:FOXA), around 3.93% of its 13F portfolio. Hi-Line Capital Management is also relatively very bullish on the stock, dishing out 2.12 percent of its 13F equity portfolio to FOXA.
Since Fox Corporation (NASDAQ:FOXA) has witnessed declining sentiment from hedge fund managers, it's easy to see that there were a few fund managers who were dropping their positions entirely last quarter. At the top of the heap, Seth Klarman's Baupost Group said goodbye to the biggest position of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $274.8 million in stock, and Michael Bilger's 59 North Capital was right behind this move, as the fund cut about $16.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 3 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Fox Corporation (NASDAQ:FOXA) but similarly valued. These stocks are PPL Corporation (NYSE:PPL), 10x Genomics, Inc. (NASDAQ:TXG), PT Telekomunikasi Indonesia (NYSE:TLK), Tractor Supply Company (NASDAQ:TSCO), Burlington Stores Inc (NYSE:BURL), Cheniere Energy Partners LP (NYSE:CQP), and Ventas, Inc. (NYSE:VTR). All of these stocks' market caps are closest to FOXA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PPL,23,417630,-2 TXG,28,1447446,5 TLK,5,108737,1 TSCO,38,1374315,9 BURL,43,1690108,11 CQP,2,4279,0 VTR,25,562555,-2 Average,23.4,800724,3.1 [/table]
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As you can see these stocks had an average of 23.4 hedge funds with bullish positions and the average amount invested in these stocks was $801 million. That figure was $441 million in FOXA's case. Burlington Stores Inc (NYSE:BURL) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 2 bullish hedge fund positions. Fox Corporation (NASDAQ:FOXA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FOXA is 55.7. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Hedge funds were also right about betting on FOXA as the stock returned 14.1% since the end of Q2 (through 10/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.