Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like News Corp (NASDAQ:NWSA).
News Corp (NASDAQ:NWSA) shareholders have witnessed an increase in activity from the world's largest hedge funds lately. NWSA was in 30 hedge funds' portfolios at the end of September. There were 23 hedge funds in our database with NWSA holdings at the end of the previous quarter. Our calculations also showed that NWSA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_364871" align="aligncenter" width="563"] Jay Petschek of Corsair Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's review the latest hedge fund action surrounding News Corp (NASDAQ:NWSA).
How are hedge funds trading News Corp (NASDAQ:NWSA)?
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the second quarter of 2019. By comparison, 30 hedge funds held shares or bullish call options in NWSA 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.
The largest stake in News Corp (NASDAQ:NWSA) was held by Yacktman Asset Management, which reported holding $155 million worth of stock at the end of September. It was followed by International Value Advisers with a $86.6 million position. Other investors bullish on the company included AQR Capital Management, Balyasny Asset Management, and D E Shaw. In terms of the portfolio weights assigned to each position Solas Capital Management allocated the biggest weight to News Corp (NASDAQ:NWSA), around 12.1% of its portfolio. International Value Advisers is also relatively very bullish on the stock, setting aside 3.21 percent of its 13F equity portfolio to NWSA.
As one would reasonably expect, some big names were breaking ground themselves. Corsair Capital Management, managed by Jay Petschek and Steven Major, created the largest position in News Corp (NASDAQ:NWSA). Corsair Capital Management had $6.2 million invested in the company at the end of the quarter. Jeffrey Talpins's Element Capital Management also made a $1.2 million investment in the stock during the quarter. The following funds were also among the new NWSA investors: Sander Gerber's Hudson Bay Capital Management, John Overdeck and David Siegel's Two Sigma Advisors, and Michael Gelband's ExodusPoint Capital.
Let's check out hedge fund activity in other stocks similar to News Corp (NASDAQ:NWSA). These stocks are Coupa Software Incorporated (NASDAQ:COUP), Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE:SBS), Ubiquiti Inc. (NYSE:UI), and Zendesk Inc (NYSE:ZEN). This group of stocks' market values are closest to NWSA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COUP,55,2562874,-2 SBS,11,372148,-1 UI,16,182015,-1 ZEN,44,1453964,-6 Average,31.5,1142750,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1143 million. That figure was $429 million in NWSA's case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE:SBS) is the least popular one with only 11 bullish hedge fund positions. News Corp (NASDAQ:NWSA) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NWSA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NWSA investors were disappointed as the stock returned -7.5% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.