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Is it Still Safe to Invest in Activision Blizzard (ATVI)?

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Cooper Investors, an investment management firm, published its “Cooper Investors Global Equities Fund (Hedged)” third quarter 2021 investor letter – a copy of which can be downloaded here. For the rolling three months to one year, the Fund returned 5.7% and 28.24% respectively, while its benchmark, by comparison, returned -0.42% and 26.57% over the same period. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Cooper Investors, in its Q3 2021 investor letter, mentioned Activision Blizzard, Inc. (NASDAQ: ATVI) and discussed its stance on the firm. Activision Blizzard, Inc. is a Santa Monica, California-based video game holding company with a $60 billion market capitalization. ATVI delivered a -16.88% return since the beginning of the year, while its 12-month returns are up by -5.81%. The stock closed at $76.40 per share on October 19, 2021.

Here is what Cooper Investors has to say about Activision Blizzard, Inc. in its Q3 2021 investor letter:

"In late July the California Department of Fair Employment and Housing filed a complaint against Activision Blizzard. Based on a two-year investigation, it accused the company of failing to comply with the state’s workplace protection laws. Specifically: the unfair treatment of women including the lack of women in leadership positions, the difficulties they have faced in gaining promotions and discrepancy in pay. The suit also described Activision Blizzard’s culture as a “breeding ground” for harassment against women. The US Equal Employment Opportunity Commission also launched a lawsuit against the company along similar grounds.

Our investment in Activision Blizzard is predicated on an attractive industry backdrop for video game publishers, with positive trends for the owners of the best intellectual property as they monetise their content across multiple vectors (console/PC, mobile, Free to Play, Live Services etc.). It is our belief that they are the owners of the best portfolio of IP in gaming, and their strategy to focus resource here would lead to a significant increase in free cash flow generation over the coming years.

However, this is a moot point if the company is culturally unsound. Attractive financial outcomes cannot persist without the company culture necessary to support them. Further, Cooper Investors’ Responsible Investing framework codifies our belief that financial or shareholder outcomes, whilst important, are not the solitary performance indicator of a company."

Based on our calculations, Activision Blizzard, Inc. (NASDAQ: ATVI) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ATVI was in 78 hedge fund portfolios at the end of the first half of 2021, compared to 76 funds in the previous quarter. Activision Blizzard, Inc. (NASDAQ: ATVI) delivered a -15.19% return in the past 3 months.

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’ 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 115 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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage.

Disclosure: None. This article is originally published at Insider Monkey.