How do you pick the next stock to invest in? One way would be to spend days 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 Liberty Global plc (NASDAQ:LBTYA).
Is LBTYA a good stock to buy? Prominent investors were getting more bullish. The number of long hedge fund bets went up by 6 recently. Liberty Global plc (NASDAQ:LBTYA) was in 35 hedge funds' portfolios at the end of September. The all time high for this statistic is 64. Our calculations also showed that LBTYA isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Seth Klarman of Baupost Group
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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. You can subscribe to our free daily newsletter on our website. Now let's check out the key hedge fund action encompassing Liberty Global plc (NASDAQ:LBTYA).
Do Hedge Funds Think LBTYA Is A Good Stock To Buy Now?
At the end of September, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the previous quarter. By comparison, 30 hedge funds held shares or bullish call options in LBTYA 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 Liberty Global plc (NASDAQ:LBTYA) was held by Berkshire Hathaway, which reported holding $378.4 million worth of stock at the end of September. It was followed by Baupost Group with a $160.9 million position. Other investors bullish on the company included Route One Investment Company, Renaissance Technologies, and Bill & Melinda Gates Foundation Trust. In terms of the portfolio weights assigned to each position Lion Point allocated the biggest weight to Liberty Global plc (NASDAQ:LBTYA), around 5.76% of its 13F portfolio. Route One Investment Company is also relatively very bullish on the stock, designating 4.12 percent of its 13F equity portfolio to LBTYA.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls' herd. DSAM Partners, managed by Guy Shahar, initiated the most valuable position in Liberty Global plc (NASDAQ:LBTYA). DSAM Partners had $9.5 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $4.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Steve Cohen's Point72 Asset Management, Jinghua Yan's TwinBeech Capital, and Qing Li's Sciencast Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Liberty Global plc (NASDAQ:LBTYA) but similarly valued. We will take a look at VICI Properties Inc. (NYSE:VICI), Jack Henry & Associates, Inc. (NASDAQ:JKHY), SVB Financial Group (NASDAQ:SIVB), PulteGroup, Inc. (NYSE:PHM), PagSeguro Digital Ltd. (NYSE:PAGS), Fair Isaac Corporation (NYSE:FICO), and NortonLifeLock Inc. (NASDAQ:NLOK). This group of stocks' market caps are closest to LBTYA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VICI,40,1453632,-11 JKHY,30,351987,-1 SIVB,27,453139,1 PHM,43,1017683,1 PAGS,24,1054247,-3 FICO,43,1273689,7 NLOK,34,1047927,-3 Average,34.4,950329,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.4 hedge funds with bullish positions and the average amount invested in these stocks was $950 million. That figure was $1003 million in LBTYA's case. PulteGroup, Inc. (NYSE:PHM) is the most popular stock in this table. On the other hand PagSeguro Digital Ltd. (NYSE:PAGS) is the least popular one with only 24 bullish hedge fund positions. Liberty Global plc (NASDAQ:LBTYA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LBTYA is 55.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on LBTYA as the stock returned 19.5% since the end of Q3 (through 12/18) 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.