At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards The Walt Disney Company (NYSE:DIS) at the end of the second quarter and determine whether the smart money was really smart about this stock.
The Walt Disney Company (NYSE:DIS) shareholders have witnessed an increase in hedge fund sentiment lately.The Walt Disney Company (NYSE:DIS) was in 105 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 118. There were 102 hedge funds in our database with DIS holdings at the end of March. Our calculations also showed that DIS ranked #18 among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dan Loeb of Third Point
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out ideas like this under-the-radar stock to identify the next tenbagger. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let's take a glance at the latest hedge fund action regarding The Walt Disney Company (NYSE:DIS).
How are hedge funds trading The Walt Disney Company (NYSE:DIS)?
At the end of the second quarter, a total of 105 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the first quarter of 2020. On the other hand, there were a total of 113 hedge funds with a bullish position in DIS 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.
The largest stake in The Walt Disney Company (NYSE:DIS) was held by Coatue Management, which reported holding $1025.8 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $1013.2 million position. Other investors bullish on the company included Eagle Capital Management, Third Point, and D1 Capital Partners. In terms of the portfolio weights assigned to each position Yost Capital Management allocated the biggest weight to The Walt Disney Company (NYSE:DIS), around 9.51% of its 13F portfolio. Coatue Management is also relatively very bullish on the stock, setting aside 9.03 percent of its 13F equity portfolio to DIS.
As one would reasonably expect, key money managers have been driving this bullishness. Matrix Capital Management, managed by David Goel and Paul Ferri, assembled the most valuable position in The Walt Disney Company (NYSE:DIS). Matrix Capital Management had $223 million invested in the company at the end of the quarter. David Tepper's Appaloosa Management LP also made a $133.8 million investment in the stock during the quarter. The other funds with brand new DIS positions are Barry Dargan's Intermede Investment Partners, Frank Brosens's Taconic Capital, and Adam Peterson's Magnolia Capital Fund.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as The Walt Disney Company (NYSE:DIS) but similarly valued. We will take a look at Tesla Inc. (NASDAQ:TSLA), Netflix, Inc. (NASDAQ:NFLX), Novartis AG (NYSE:NVS), Cisco Systems, Inc. (NASDAQ:CSCO), Merck & Co., Inc. (NYSE:MRK), The Coca-Cola Company (NYSE:KO), and Exxon Mobil Corporation (NYSE:XOM). This group of stocks' market caps are closest to DIS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSLA,63,5560864,2 NFLX,113,13487546,4 NVS,21,1942870,-9 CSCO,59,2904558,1 MRK,76,4854278,-2 KO,59,20093024,4 XOM,53,1114752,-12 Average,63.4,7136842,-1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 63.4 hedge funds with bullish positions and the average amount invested in these stocks was $7.1 billion. That figure was $6.8 billion in DIS's case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 21 bullish hedge fund positions. The Walt Disney Company (NYSE:DIS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DIS is 85.3. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 28.2% in 2020 through August 24th but still beat the market by 20.6 percentage points. Hedge funds were also right about betting on DIS as the stock returned 17.2% since Q2 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.