Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let's see whether Liberty Global Plc (NASDAQ:LBTYK) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Liberty Global Plc (NASDAQ:LBTYK) shares haven't seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 44 hedge funds' portfolios at the end of the fourth quarter of 2019. At the end of this article we will also compare LBTYK to other stocks including International Flavors & Fragrances Inc (NYSE:IFF), Zebra Technologies Corporation (NASDAQ:ZBRA), and Masco Corporation (NYSE:MAS) to get a better sense of its popularity. 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 S&P 500 ETFs by more than 41 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.
[caption id="attachment_30647" align="aligncenter" width="400"] Boykin Curry of Eagle Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's view the new hedge fund action regarding Liberty Global Plc (NASDAQ:LBTYK).
How have hedgies been trading Liberty Global Plc (NASDAQ:LBTYK)?
At Q4's end, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in LBTYK over the last 18 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Seth Klarman's Baupost Group has the largest position in Liberty Global Plc (NASDAQ:LBTYK), worth close to $1.1419 billion, amounting to 12.6% of its total 13F portfolio. On Baupost Group's heels is Boykin Curry of Eagle Capital Management, with a $827 million position; the fund has 2.6% of its 13F portfolio invested in the stock. Remaining peers that are bullish contain Christian Leone's Luxor Capital Group, Warren Buffett's Berkshire Hathaway and William Duhamel's Route One Investment Company. In terms of the portfolio weights assigned to each position MFN Partners allocated the biggest weight to Liberty Global Plc (NASDAQ:LBTYK), around 17.97% of its 13F portfolio. Baupost Group is also relatively very bullish on the stock, earmarking 12.61 percent of its 13F equity portfolio to LBTYK.
Because Liberty Global Plc (NASDAQ:LBTYK) has faced bearish sentiment from hedge fund managers, logic holds that there were a few fund managers that elected to cut their full holdings in the third quarter. At the top of the heap, Charles Davidson and Joseph Jacobs's Wexford Capital cut the largest investment of the "upper crust" of funds monitored by Insider Monkey, valued at about $39.9 million in stock. Larry Robbins's fund, Glenview Capital, also sold off its stock, about $18.8 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Liberty Global Plc (NASDAQ:LBTYK). These stocks are International Flavors & Fragrances Inc (NYSE:IFF), Zebra Technologies Corporation (NASDAQ:ZBRA), Masco Corporation (NYSE:MAS), and CenterPoint Energy, Inc. (NYSE:CNP). This group of stocks' market values resemble LBTYK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IFF,28,290762,6 ZBRA,34,614256,15 MAS,45,948362,-6 CNP,30,1326987,-1 Average,34.25,795092,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $795 million. That figure was $3363 million in LBTYK's case. Masco Corporation (NYSE:MAS) is the most popular stock in this table. On the other hand International Flavors & Fragrances Inc (NYSE:IFF) is the least popular one with only 28 bullish hedge fund positions. Liberty Global Plc (NASDAQ:LBTYK) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately LBTYK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LBTYK were disappointed as the stock returned -32.3% during the same time period 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.