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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not News Corp (NASDAQ:NWSA) makes for a good investment right now.
Is News Corp (NASDAQ:NWSA) a good stock to buy now? Prominent investors are reducing their bets on the stock. The number of long hedge fund positions fell by 7 in recent months. Our calculations also showed that NWSA isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 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.
[caption id="attachment_221324" align="aligncenter" width="400"] Donald Yacktman of Yacktman Asset Management[/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. Now we're going to view the recent hedge fund action regarding News Corp (NASDAQ:NWSA).
How have hedgies been trading News Corp (NASDAQ:NWSA)?
Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in NWSA a year ago. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Among these funds, Yacktman Asset Management held the most valuable stake in News Corp (NASDAQ:NWSA), which was worth $245.8 million at the end of the third quarter. On the second spot was International Value Advisers which amassed $78 million worth of shares. AQR Capital Management, General Equity Partners, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position General Equity Partners allocated the biggest weight to News Corp (NASDAQ:NWSA), around 15.38% of its 13F portfolio. Solas Capital Management is also relatively very bullish on the stock, designating 13.68 percent of its 13F equity portfolio to NWSA.
Due to the fact that News Corp (NASDAQ:NWSA) has faced declining sentiment from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of hedge funds that slashed their entire stakes by the end of the third quarter. At the top of the heap, Douglas Dossey and Arthur Young's Tensile Capital said goodbye to the largest investment of all the hedgies followed by Insider Monkey, valued at an estimated $11 million in stock. David Harding's fund, Winton Capital Management, also said goodbye to its stock, about $1.3 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 7 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as News Corp (NASDAQ:NWSA) but similarly valued. These stocks are Gerdau SA (NYSE:GGB), Credit Acceptance Corp. (NASDAQ:CACC), Lear Corporation (NYSE:LEA), and Ares Management Corporation (NYSE:ARES). This group of stocks' market valuations resemble NWSA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GGB,7,165960,-2 CACC,31,948045,6 LEA,29,1007450,-10 ARES,18,235883,1 Average,21.25,589335,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $589 million. That figure was $511 million in NWSA's case. Credit Acceptance Corp. (NASDAQ:CACC) is the most popular stock in this table. On the other hand Gerdau SA (NYSE:GGB) is the least popular one with only 7 bullish hedge fund positions. News Corp (NASDAQ:NWSA) 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 NWSA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NWSA were disappointed as the stock returned -27.6% 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. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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