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Were Hedge Funds Right About Crowding Into Liberty Broadband Corp (LBRDK)?

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·6 min read
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In this article we are going to use hedge fund sentiment as a tool and determine whether Liberty Broadband Corp (NASDAQ:LBRDK) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Liberty Broadband Corp (NASDAQ:LBRDK) a bargain? Money managers were in a bullish mood. The number of bullish hedge fund positions improved by 13 in recent months. Liberty Broadband Corp (NASDAQ:LBRDK) was in 58 hedge funds' portfolios at the end of June. The all time high for this statistics is 50. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that LBRDK isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 S&P 500 ETFs by more than 56 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. 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.

Boykin Curry EAGLE CAPITAL MANAGEMENT
Boykin Curry EAGLE CAPITAL MANAGEMENT

Boykin Curry of Eagle Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we're going to view the fresh hedge fund action encompassing Liberty Broadband Corp (NASDAQ:LBRDK).

What does smart money think about Liberty Broadband Corp (NASDAQ:LBRDK)?

At the end of June, a total of 58 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from one quarter earlier. On the other hand, there were a total of 40 hedge funds with a bullish position in LBRDK a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Liberty Broadband Corp (NASDAQ:LBRDK) was held by Eagle Capital Management, which reported holding $748 million worth of stock at the end of September. It was followed by Soros Fund Management with a $654.7 million position. Other investors bullish on the company included Stockbridge Partners, Coatue Management, and Cat Rock Capital. In terms of the portfolio weights assigned to each position Makaira Partners allocated the biggest weight to Liberty Broadband Corp (NASDAQ:LBRDK), around 23.5% of its 13F portfolio. Cat Rock Capital is also relatively very bullish on the stock, dishing out 21.74 percent of its 13F equity portfolio to LBRDK.

As aggregate interest increased, specific money managers have jumped into Liberty Broadband Corp (NASDAQ:LBRDK) headfirst. Cadian Capital, managed by Eric Bannasch, established the most valuable position in Liberty Broadband Corp (NASDAQ:LBRDK). Cadian Capital had $27.3 million invested in the company at the end of the quarter. Michael Pausic's Foxhaven Asset Management also initiated a $21.2 million position during the quarter. The other funds with brand new LBRDK positions are Leonard A. Potter's Wildcat Capital Management, Israel Englander's Millennium Management, and Brandon Haley's Holocene Advisors.

Let's also examine hedge fund activity in other stocks similar to Liberty Broadband Corp (NASDAQ:LBRDK). These stocks are Best Buy Co., Inc. (NYSE:BBY), State Street Corporation (NYSE:STT), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), Fortinet Inc (NASDAQ:FTNT), Archer Daniels Midland Company (NYSE:ADM), Palo Alto Networks Inc (NYSE:PANW), and Genmab A/S (NASDAQ:GMAB). All of these stocks' market caps match LBRDK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBY,33,1062886,-4 STT,36,668259,2 BMRN,45,2005739,-9 FTNT,44,1815016,15 ADM,28,606680,-4 PANW,51,3587653,4 GMAB,15,243405,1 Average,36,1427091,0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1427 million. That figure was $3372 million in LBRDK's case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Genmab A/S (NASDAQ:GMAB) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Liberty Broadband Corp (NASDAQ:LBRDK) is more popular among hedge funds. Our overall hedge fund sentiment score for LBRDK is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on LBRDK as the stock returned 19.9% since the end of June (through 10/16) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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