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 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2014) generated a return of 15.1% during the same 12-month period, with 53% 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' 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 Qurate Retail, Inc. (NASDAQ:QRTEA).
Qurate Retail, Inc. (NASDAQ:QRTEA) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 36 hedge funds' portfolios at the end of September. At the end of this article we will also compare QRTEA to other stocks including Open Text Corporation (NASDAQ:OTEX), BeiGene, Ltd. (NASDAQ:BGNE), and Jazz Pharmaceuticals Public Limited Company (NASDAQ:JAZZ) to get a better sense of its popularity.
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 the 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 18 percentage points since May 2014 through December 3, 2018 (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_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
We're going to take a glance at the fresh hedge fund action regarding Qurate Retail, Inc. (NASDAQ:QRTEA).
How are hedge funds trading Qurate Retail, Inc. (NASDAQ:QRTEA)?
At Q3's end, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, with no change from the previous quarter. Below, you can check out the change in hedge fund sentiment towards QRTEA over the last 13 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, FPR Partners was the largest shareholder of Qurate Retail, Inc. (NASDAQ:QRTEA), with a stake worth $288.2 million reported as of the end of September. Trailing FPR Partners was AQR Capital Management, which amassed a stake valued at $161.4 million. Makaira Partners, International Value Advisers, and Chieftain Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Qurate Retail, Inc. (NASDAQ:QRTEA) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there were a few hedgies that decided to sell off their full holdings by the end of the third quarter. Interestingly, Benjamin A. Smith's Laurion Capital Management cut the biggest investment of the "upper crust" of funds monitored by Insider Monkey, worth about $51.8 million in stock. Scott Wallace's fund, Wallace Capital Management, also dropped its stock, about $26.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to Qurate Retail, Inc. (NASDAQ:QRTEA). We will take a look at Open Text Corporation (NASDAQ:OTEX), BeiGene, Ltd. (NASDAQ:BGNE), Jazz Pharmaceuticals plc (NASDAQ:JAZZ), and Duke Realty Corporation (NYSE:DRE). This group of stocks' market caps resemble QRTEA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OTEX,19,759011,6 BGNE,23,3215879,2 JAZZ,29,1005592,2 DRE,16,343282,-6 [/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 $1.33 billion. That figure was $1.10 billion in QRTEA's case. Jazz Pharmaceuticals plc (NASDAQ:JAZZ) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Qurate Retail, Inc. (NASDAQ:QRTEA) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.