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 returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month 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 Tripadvisor Holdings Inc (NASDAQ:LTRPA).
Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA) investors should be aware of a decrease in support from the world's most elite money managers recently. Our calculations also showed that LTRPA isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a peek at the recent hedge fund action regarding Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA).
How are hedge funds trading Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA)?
Heading into the third quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the first quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in LTRPA a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Boykin Curry's Eagle Capital Management has the number one position in Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA), worth close to $66 million, amounting to 0.2% of its total 13F portfolio. Coming in second is Sander Gerber of Hudson Bay Capital Management, with a $45.3 million position; 1% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism contain David Costen Haley's HBK Investments, Michael A. Price and Amos Meron's Empyrean Capital Partners and Renaissance Technologies.
Because Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA) has experienced bearish sentiment from hedge fund managers, logic holds that there lies a certain "tier" of money managers that slashed their entire stakes by the end of the second quarter. Interestingly, Lee Ainslie's Maverick Capital said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, comprising an estimated $6 million in stock. Ram Seshan Venkateswaran's fund, Vernier Capital, also cut its stock, about $3.2 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds by the end of the second quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA) but similarly valued. These stocks are U.S. Silica Holdings Inc (NYSE:SLCA), SemGroup Corporation (NYSE:SEMG), i3 Verticals, Inc. (NASDAQ:IIIV), and Contura Energy, Inc. (NYSE:CTRA). This group of stocks' market valuations resemble LTRPA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SLCA,17,281845,3 SEMG,15,65133,2 IIIV,13,71699,5 CTRA,22,376990,-10 Average,16.75,198917,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $256 million in LTRPA's case. Contura Energy, Inc. (NYSE:CTRA) is the most popular stock in this table. On the other hand i3 Verticals, Inc. (NASDAQ:IIIV) is the least popular one with only 13 bullish hedge fund positions. Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately LTRPA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LTRPA were disappointed as the stock returned -24.1% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.