Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
The Liberty SiriusXM Group (NASDAQ:LSXMK) was in 45 hedge funds' portfolios at the end of December. LSXMK investors should pay attention to a decrease in hedge fund sentiment of late. There were 48 hedge funds in our database with LSXMK holdings at the end of the previous quarter. Our calculations also showed that LSXMK isn't among the 30 most popular stocks among hedge funds.
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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
[caption id="attachment_735641" align="aligncenter" width="473"] Michael Lowenstein of Kensico Capital[/caption]
We're going to take a look at the recent hedge fund action regarding The Liberty SiriusXM Group (NASDAQ:LSXMK).
What have hedge funds been doing with The Liberty SiriusXM Group (NASDAQ:LSXMK)?
Heading into the first quarter of 2019, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the second quarter of 2018. By comparison, 41 hedge funds held shares or bullish call options in LSXMK a year ago. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Warren Buffett's Berkshire Hathaway has the number one position in The Liberty SiriusXM Group (NASDAQ:LSXMK), worth close to $1.1497 billion, comprising 0.6% of its total 13F portfolio. The second most bullish fund manager is Bob Peck and Andy Raab of FPR Partners, with a $274.3 million position; 7.2% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism consist of D. E. Shaw's D E Shaw, Michael Lowenstein's Kensico Capital and Ryan Frick and Oliver Evans's Dorsal Capital Management.
Due to the fact that The Liberty SiriusXM Group (NASDAQ:LSXMK) has faced falling interest from the smart money, it's easy to see that there were a few hedge funds that decided to sell off their positions entirely heading into Q3. It's worth mentioning that Phill Gross and Robert Atchinson's Adage Capital Management dropped the largest investment of the "upper crust" of funds monitored by Insider Monkey, comprising close to $22.4 million in stock, and Malcolm Fairbairn's Ascend Capital was right behind this move, as the fund dropped about $8 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 3 funds heading into Q3.
Let's also examine hedge fund activity in other stocks similar to The Liberty SiriusXM Group (NASDAQ:LSXMK). We will take a look at Discovery, Inc. (NASDAQ:DISCK), Symantec Corporation (NASDAQ:SYMC), The Liberty SiriusXM Group (NASDAQ:LSXMA), and Celanese Corporation (NYSE:CE). All of these stocks' market caps match LSXMK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DISCK,34,778837,0 SYMC,33,1274331,0 LSXMA,39,1272083,0 CE,26,744447,-6 Average,33,1017425,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1017 million. That figure was $2695 million in LSXMK's case. The Liberty SiriusXM Group (NASDAQ:LSXMA) is the most popular stock in this table. On the other hand Celanese Corporation (NYSE:CE) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks The Liberty SiriusXM Group (NASDAQ:LSXMK) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on LSXMK, though not to the same extent, as the stock returned 13.14% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.