Is Qurate Retail, Inc. (QRTEA) Going to Burn These Hedge Funds?

Nina Todic

Mon, Oct 14, 2019, 6:43 PM

Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Qurate Retail, Inc. (NASDAQ:QRTEA).

Hedge fund interest in Qurate Retail, Inc. (NASDAQ:QRTEA) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Capri Holdings Limited (NYSE:CPRI), XPO Logistics Inc (NYSE:XPO), and IDACORP Inc (NYSE:IDA) to gather more data points.

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a peek at the key hedge fund action regarding Qurate Retail, Inc. (NASDAQ:QRTEA).

Hedge fund activity in Qurate Retail, Inc. (NASDAQ:QRTEA)

At the end of the second quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 36 hedge funds with a bullish position in QRTEA a year ago. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Bob Peck and Andy Raab's FPR Partners has the number one position in Qurate Retail, Inc. (NASDAQ:QRTEA), worth close to $208.6 million, accounting for 5% of its total 13F portfolio. On FPR Partners's heels is AQR Capital Management, led by Cliff Asness, holding a $106.8 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish consist of Charles de Vaulx's International Value Advisers, Thomas Bancroft's Makaira Partners and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Since Qurate Retail, Inc. (NASDAQ:QRTEA) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of hedge funds that elected to cut their full holdings by the end of the second quarter. At the top of the heap, Joshua Nash's Ulysses Management dumped the largest position of the 750 funds followed by Insider Monkey, valued at an estimated $6.5 million in stock. Benjamin A. Smith's fund, Laurion Capital Management, also dumped its stock, about $1.6 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks similar to Qurate Retail, Inc. (NASDAQ:QRTEA). We will take a look at Capri Holdings Limited (NYSE:CPRI), XPO Logistics Inc (NYSE:XPO), IDACORP Inc (NYSE:IDA), and Compania Cervecerias Unidas S.A. (NYSE:CCU). This group of stocks' market values resemble QRTEA's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CPRI,35,808989,-2 XPO,24,2275608,-2 IDA,22,332483,4 CCU,10,69208,-1 Average,22.75,871572,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $872 million. That figure was $640 million in QRTEA's case. Capri Holdings Limited (NYSE:CPRI) is the most popular stock in this table. On the other hand Compania Cervecerias Unidas S.A. (NYSE:CCU) is the least popular one with only 10 bullish hedge fund positions. Qurate Retail, Inc. (NASDAQ:QRTEA) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately QRTEA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on QRTEA were disappointed as the stock returned -16.7% during the third quarter 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 (view the video below) among hedge funds as many of these stocks already outperformed the market so far this year.