How do you pick the next stock to invest in? One way would be to spend hours 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 Lions Gate Entertainment Corporation (NYSE:LGF-A).
Lions Gate Entertainment Corporation (NYSE:LGF-A) investors should be aware of a decrease in activity from the world's largest hedge funds of late. LGF-A was in 18 hedge funds' portfolios at the end of the first quarter of 2019. There were 21 hedge funds in our database with LGF-A positions at the end of the previous quarter. Our calculations also showed that LGF-A 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 40 percentage points since May 2014 through May 30, 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.
Let's go over the latest hedge fund action surrounding Lions Gate Entertainment Corporation (NYSE:LGF-A).
What does smart money think about Lions Gate Entertainment Corporation (NYSE:LGF-A)?
At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in LGF-A a year ago. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, MHR Fund Management was the largest shareholder of Lions Gate Entertainment Corporation (NYSE:LGF-A), with a stake worth $248.4 million reported as of the end of March. Trailing MHR Fund Management was Soros Fund Management, which amassed a stake valued at $16.4 million. Kingdon Capital, Citadel Investment Group, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
Because Lions Gate Entertainment Corporation (NYSE:LGF-A) has witnessed declining sentiment from the aggregate hedge fund industry, it's easy to see that there were a few hedgies that decided to sell off their entire stakes heading into Q3. At the top of the heap, Matthew Knauer and Mina Faltas's Nokota Management cut the largest position of all the hedgies followed by Insider Monkey, worth an estimated $4.7 million in stock. Paul Hondros's fund, AlphaOne Capital Partners, also said goodbye to its stock, about $4.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds heading into Q3.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Lions Gate Entertainment Corporation (NYSE:LGF-A) but similarly valued. These stocks are American National Insurance Company (NASDAQ:ANAT), NCR Corporation (NYSE:NCR), Cabot Microelectronics Corporation (NASDAQ:CCMP), and Cornerstone OnDemand, Inc. (NASDAQ:CSOD). This group of stocks' market values are closest to LGF-A's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANAT,9,37272,-6 NCR,22,250591,2 CCMP,17,273525,-3 CSOD,29,644787,-2 Average,19.25,301544,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $302 million. That figure was $316 million in LGF-A's case. Cornerstone OnDemand, Inc. (NASDAQ:CSOD) is the most popular stock in this table. On the other hand American National Insurance Company (NASDAQ:ANAT) is the least popular one with only 9 bullish hedge fund positions. Lions Gate Entertainment Corporation (NYSE:LGF-A) 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately LGF-A wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LGF-A investors were disappointed as the stock returned -22.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.