Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Liberty Broadband Corp (NASDAQ:LBRDK).
Hedge fund interest in Liberty Broadband Corp (NASDAQ:LBRDK) shares was flat at the end of last quarter. This is usually a negative indicator, but not in Liberty's case. At the end of this article we will also compare LBRDK to other stocks including Liberty Broadband Corp (NASDAQ:LBRDA), Pembina Pipeline Corp (NYSE:PBA), and Fastenal Company (NASDAQ:FAST) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_30602" align="aligncenter" width="600"] Philippe Laffont of Coatue 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 take a peek at the latest hedge fund action encompassing Liberty Broadband Corp (NASDAQ:LBRDK).
Hedge fund activity in Liberty Broadband Corp (NASDAQ:LBRDK)
At Q3's end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 37 hedge funds held shares or bullish call options in LBRDK a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Coatue Management was the largest shareholder of Liberty Broadband Corp (NASDAQ:LBRDK), with a stake worth $842 million reported as of the end of September. Trailing Coatue Management was Soros Fund Management, which amassed a stake valued at $737.2 million. Eagle Capital Management, Stockbridge Partners, and Ashe Capital 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 Soros Fund Management allocated the biggest weight to Liberty Broadband Corp (NASDAQ:LBRDK), around 20.42% of its portfolio. Makaira Partners is also relatively very bullish on the stock, setting aside 16.36 percent of its 13F equity portfolio to LBRDK.
Due to the fact that Liberty Broadband Corp (NASDAQ:LBRDK) has experienced a decline in interest from hedge fund managers, it's safe to say that there was a specific group of hedge funds that slashed their entire stakes heading into Q4. Intriguingly, Jonathan Auerbach's Hound Partners dropped the largest position of the 750 funds watched by Insider Monkey, valued at close to $44.6 million in stock, and Jorge Paulo Lemann's 3G Capital was right behind this move, as the fund cut about $12 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Liberty Broadband Corp (NASDAQ:LBRDK). We will take a look at Liberty Broadband Corp (NASDAQ:LBRDA), Pembina Pipeline Corp (NYSE:PBA), Fastenal Company (NASDAQ:FAST), and ANSYS, Inc. (NASDAQ:ANSS). This group of stocks' market values are similar to LBRDK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LBRDA,21,694238,1 PBA,10,101496,-2 FAST,28,1046417,-1 ANSS,28,882714,3 Average,21.75,681216,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $681 million. That figure was $3494 million in LBRDK's case. Fastenal Company (NASDAQ:FAST) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Liberty Broadband Corp (NASDAQ:LBRDK) is more popular among hedge funds. 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. Hedge funds were also right about betting on LBRDK as the stock returned 14.2% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.