We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Sinclair Broadcast Group, Inc. (NASDAQ:SBGI).
Is Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) a superb stock to buy now? The best stock pickers are becoming less confident. The number of long hedge fund positions retreated by 7 in recent months. Our calculations also showed that SBGI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). SBGI was in 29 hedge funds' portfolios at the end of the third quarter of 2019. There were 36 hedge funds in our database with SBGI holdings at the end of the previous quarter. Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_365194" align="aligncenter" width="450"] David E. Shaw of D.E. Shaw[/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. We're going to view the fresh hedge fund action encompassing Sinclair Broadcast Group, Inc. (NASDAQ:SBGI).
How are hedge funds trading Sinclair Broadcast Group, Inc. (NASDAQ:SBGI)?
At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the second quarter of 2019. On the other hand, there were a total of 31 hedge funds with a bullish position in SBGI 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, Renaissance Technologies has the number one position in Sinclair Broadcast Group, Inc. (NASDAQ:SBGI), worth close to $175.1 million, accounting for 0.1% of its total 13F portfolio. Coming in second is AQR Capital Management, led by Cliff Asness, holding a $83.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions comprise William C. Martin's Raging Capital Management, David E. Shaw's D E Shaw and Carl Goldsmith and Scott Klein's Beach Point Capital Management. In terms of the portfolio weights assigned to each position Beach Point Capital Management allocated the biggest weight to Sinclair Broadcast Group, Inc. (NASDAQ:SBGI), around 12.22% of its portfolio. Raging Capital Management is also relatively very bullish on the stock, earmarking 8.17 percent of its 13F equity portfolio to SBGI.
Due to the fact that Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) has experienced falling interest from the entirety of the hedge funds we track, we can see that there were a few hedgies who sold off their full holdings by the end of the third quarter. At the top of the heap, Ken Heebner's Capital Growth Management cut the biggest position of all the hedgies monitored by Insider Monkey, comprising an estimated $33.7 million in stock, and Seth Klarman's Baupost Group was right behind this move, as the fund dropped about $29.5 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 7 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) but similarly valued. These stocks are Shake Shack Inc (NYSE:SHAK), Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), Penske Automotive Group, Inc. (NYSE:PAG), and Compania de Minas Buenaventura S.A.A. (NYSE:BVN). This group of stocks' market values are closest to SBGI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHAK,26,607030,-1 CBRL,21,240229,-1 PAG,16,63851,-1 BVN,6,14159,-1 Average,17.25,231317,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $231 million. That figure was $468 million in SBGI's case. Shake Shack Inc (NYSE:SHAK) is the most popular stock in this table. On the other hand Compania de Minas Buenaventura S.A.A. (NYSE:BVN) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) 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. Unfortunately SBGI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SBGI were disappointed as the stock returned -18% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.