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Hedge Funds Are Buying Warner Music Group Corp. (WMG)

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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Warner Music Group Corp. (NASDAQ:WMG).

Warner Music Group Corp. (NASDAQ:WMG) has seen an increase in support from the world's most elite money managers recently. Warner Music Group Corp. (NASDAQ:WMG) was in 29 hedge funds' portfolios at the end of June. The all time high for this statistic is 31. There were 27 hedge funds in our database with WMG positions at the end of the first quarter. Our calculations also showed that WMG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Gil Simon of SoMa Equity Partners
Gil Simon of SoMa Equity Partners

Gil Simon of SoMa Equity Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium 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. Now we're going to go over the recent hedge fund action surrounding Warner Music Group Corp. (NASDAQ:WMG).

Do Hedge Funds Think WMG Is A Good Stock To Buy Now?

At Q2's end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WMG over the last 24 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Among these funds, Darsana Capital Partners held the most valuable stake in Warner Music Group Corp. (NASDAQ:WMG), which was worth $151.6 million at the end of the second quarter. On the second spot was SoMa Equity Partners which amassed $147.8 million worth of shares. OZ Management, Slate Path Capital, and Shannon River Fund 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 Marlowe Partners allocated the biggest weight to Warner Music Group Corp. (NASDAQ:WMG), around 13.66% of its 13F portfolio. Slate Path Capital is also relatively very bullish on the stock, designating 6.31 percent of its 13F equity portfolio to WMG.

As one would reasonably expect, some big names were breaking ground themselves. Lansdowne Partners, managed by Suzi Nutton (CEO), initiated the biggest position in Warner Music Group Corp. (NASDAQ:WMG). Lansdowne Partners had $43.9 million invested in the company at the end of the quarter. David Fiszel's Honeycomb Asset Management also initiated a $22.2 million position during the quarter. The other funds with brand new WMG positions are Suraj Parkash Chopra's Force Hill Capital Management, Renaissance Technologies, and Gary Claar's Claar Advisors.

Let's also examine hedge fund activity in other stocks similar to Warner Music Group Corp. (NASDAQ:WMG). We will take a look at Shinhan Financial Group Co., Ltd. (NYSE:SHG), Incyte Corporation (NASDAQ:INCY), Ally Financial Inc (NYSE:ALLY), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), Tyler Technologies, Inc. (NYSE:TYL), Catalent Inc (NYSE:CTLT), and Pool Corporation (NASDAQ:POOL). This group of stocks' market valuations resemble WMG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHG,5,31985,-1 INCY,34,3644056,2 ALLY,54,2432402,3 SSNC,49,2568906,-5 TYL,33,731035,5 CTLT,40,870986,11 POOL,40,1025705,-1 Average,36.4,1615011,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.4 hedge funds with bullish positions and the average amount invested in these stocks was $1615 million. That figure was $794 million in WMG's case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 5 bullish hedge fund positions. Warner Music Group Corp. (NASDAQ:WMG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WMG is 59.6. 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 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. A small number of hedge funds were also right about betting on WMG as the stock returned 31.3% since the end of the second quarter (through 10/15) and outperformed the market by an even larger margin.

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