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Were Hedge Funds Right About The Walt Disney Company (DIS)?

Reymerlyn Martin
·6 min read

The Walt Disney Company (NYSE:DIS) was in 105 hedge funds' portfolios at the end of June. The all time high for this statistics is 118. DIS investors should be aware of an increase in hedge fund interest lately. There were 102 hedge funds in our database with DIS positions at the end of the first quarter. Our calculations also showed that DIS raked 18th 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.

Frank Brosens Taconic Capital
Frank Brosens Taconic Capital

Frank Brosens of Taconic 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. Keeping this in mind let's check out the fresh hedge fund action surrounding The Walt Disney Company (NYSE:DIS).

What have hedge funds been doing with The Walt Disney Company (NYSE:DIS)?

At second quarter's end, a total of 105 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the previous quarter. By comparison, 113 hedge funds held shares or bullish call options in DIS a year ago. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Philippe Laffont's Coatue Management has the most valuable position in The Walt Disney Company (NYSE:DIS), worth close to $1.0258 billion, corresponding to 9% of its total 13F portfolio. The second largest stake is held by Fisher Asset Management, managed by Ken Fisher, which holds a $1.0132 billion position; 1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions encompass Boykin Curry's Eagle Capital Management, Dan Loeb's Third Point and Daniel Sundheim's D1 Capital Partners. In terms of the portfolio weights assigned to each position Yost Capital Management allocated the biggest weight to The Walt Disney Company (NYSE:DIS), around 9.51% of its 13F portfolio. Coatue Management is also relatively very bullish on the stock, setting aside 9.03 percent of its 13F equity portfolio to DIS.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Matrix Capital Management, managed by David Goel and Paul Ferri, created the largest position in The Walt Disney Company (NYSE:DIS). Matrix Capital Management had $223 million invested in the company at the end of the quarter. David Tepper's Appaloosa Management LP also initiated a $133.8 million position during the quarter. The following funds were also among the new DIS investors: Barry Dargan's Intermede Investment Partners, Frank Brosens's Taconic Capital, and Adam Peterson's Magnolia Capital Fund.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as The Walt Disney Company (NYSE:DIS) but similarly valued. We will take a look at Tesla Inc. (NASDAQ:TSLA), Netflix, Inc. (NASDAQ:NFLX), Novartis AG (NYSE:NVS), Cisco Systems, Inc. (NASDAQ:CSCO), Merck & Co., Inc. (NYSE:MRK), The Coca-Cola Company (NYSE:KO), and Exxon Mobil Corporation (NYSE:XOM). This group of stocks' market values resemble DIS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSLA,63,5560864,2 NFLX,113,13487546,4 NVS,21,1942870,-9 CSCO,59,2904558,1 MRK,76,4854278,-2 KO,59,20093024,4 XOM,53,1114752,-12 Average,63.4,7136842,-1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 63.4 hedge funds with bullish positions and the average amount invested in these stocks was $7137 million. That figure was $6820 million in DIS's case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 21 bullish hedge fund positions. The Walt Disney Company (NYSE:DIS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DIS is 85.3. 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 gained 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Hedge funds were also right about betting on DIS, though not to the same extent, as the stock returned 13.7% since Q2 (through October 16th) and outperformed the market as well.

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

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