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Were Hedge Funds Right About Twenty-First Century Fox Inc (FOXA)?

Reymerlyn Martin

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Twenty-First Century Fox Inc (NASDAQ:FOXA).

Is Twenty-First Century Fox Inc (NASDAQ:FOXA) a bargain? Prominent investors are becoming less confident. The number of bullish hedge fund positions retreated by 3 recently. Our calculations also showed that FOXA is among the 30 most popular stocks among hedge funds, ranking 30th. FOXA was in 70 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 73 hedge funds in our database with FOXA positions at the end of the previous quarter.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

BAUPOST GROUP Seth Klarman

We're going to take a look at the fresh hedge fund action regarding Twenty-First Century Fox Inc (NASDAQ:FOXA).

What does the smart money think about Twenty-First Century Fox Inc (NASDAQ:FOXA)?

At the end of the fourth quarter, a total of 70 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards FOXA over the last 14 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

FOXA_mar2019

Among these funds, Baupost Group held the most valuable stake in Twenty-First Century Fox Inc (NASDAQ:FOXA), which was worth $2467.7 million at the end of the third quarter. On the second spot was Egerton Capital Limited which amassed $1929.3 million worth of shares. Moreover, Pentwater Capital Management, Hound Partners, and Yacktman Asset Management were also bullish on Twenty-First Century Fox Inc (NASDAQ:FOXA), allocating a large percentage of their portfolios to this stock.

Because Twenty-First Century Fox Inc (NASDAQ:FOXA) has faced declining sentiment from the aggregate hedge fund industry, it's easy to see that there was a specific group of hedge funds that decided to sell off their full holdings last quarter. Interestingly, Jim Simons's Renaissance Technologies sold off the largest position of the 700 funds followed by Insider Monkey, comprising about $337 million in stock, and Richard Gerson and Navroz D. Udwadia's Falcon Edge Capital was right behind this move, as the fund sold off about $81 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds last quarter.

Let's now review hedge fund activity in other stocks similar to Twenty-First Century Fox Inc (NASDAQ:FOXA). These stocks are Stryker Corporation (NYSE:SYK), Mondelez International Inc (NASDAQ:MDLZ), Automatic Data Processing (NASDAQ:ADP), and Eni SpA (NYSE:E). This group of stocks' market caps are similar to FOXA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SYK,44,621444,0 MDLZ,45,1739884,-1 ADP,42,2979929,7 E,7,87961,0 Average,34.5,1357305,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $1357 million. That figure was $9865 million in FOXA's case. Mondelez International Inc (NASDAQ:MDLZ) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Twenty-First Century Fox Inc (NASDAQ:FOXA) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately WFC wasn't in this group. Hedge funds that bet on WFC were disappointed as the stock lost 13.3% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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