The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let's look at how this market volatility affected the sentiment of hedge funds towards News Corp (NASDAQ:NWS), and what that likely means for the prospects of the company and its stock.
Is News Corp (NASDAQ:NWS) an excellent investment right now? The smart money is becoming more confident. The number of long hedge fund positions moved up by 3 recently. Our calculations also showed that NWS isn't among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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_375529" align="aligncenter" width="450"] Mario Gabelli of GAMCO Investors[/caption]
We're going to review the latest hedge fund action surrounding News Corp (NASDAQ:NWS).
What does the smart money think about News Corp (NASDAQ:NWS)?
At Q4's end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NWS over the last 14 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, International Value Advisers held the most valuable stake in News Corp (NASDAQ:NWS), which was worth $43.6 million at the end of the third quarter. On the second spot was Tensile Capital which amassed $13.1 million worth of shares. Moreover, GAMCO Investors, Citadel Investment Group, and Renaissance Technologies were also bullish on News Corp (NASDAQ:NWS), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, specific money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, created the largest position in News Corp (NASDAQ:NWS). Millennium Management had $0.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $0.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Hulsizer's PEAK6 Capital Management, Gavin Saitowitz and Cisco J. del Valle's Springbok Capital, and Claes Fornell's CSat Investment Advisory.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as News Corp (NASDAQ:NWS) but similarly valued. These stocks are SL Green Realty Corp (NYSE:SLG), Black Knight, Inc. (NYSE:BKI), Telecom Argentina S.A. (NYSE:TEO), and HD Supply Holdings Inc (NASDAQ:HDS). This group of stocks' market values resemble NWS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SLG,22,150197,4 BKI,36,543143,0 TEO,9,84728,0 HDS,31,1053143,-7 Average,24.5,457803,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $458 million. That figure was $72 million in NWS's case. Black Knight, Inc. (NYSE:BKI) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 9 bullish hedge fund positions. News Corp (NASDAQ:NWS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately NWS wasn't in this group. Hedge funds that bet on NWS were disappointed as the stock returned 10.2% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.