Were Hedge Funds Right About Souring On Expedia Group, Inc. (EXPE)?

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Abigail Fisher

Sat, Mar 30, 2019, 6:35 PM

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 Expedia Group, Inc. (NASDAQ:EXPE).

Expedia Group, Inc. (NASDAQ:EXPE) was in 39 hedge funds' portfolios at the end of December. EXPE has seen an increase in activity from the world's largest hedge funds in the latest quarter, however, overall trend in hedge fund sentiment is still negative. There were 37 hedge funds in our database with EXPE holdings at the end of September, but his figure was above 70 a few years ago. Our calculations also showed that EXPE isn't among the 30 most popular stocks among hedge funds.

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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

BlueMountain Capital Management's Returns, AUM and Holdings

We're going to analyze the fresh hedge fund action encompassing Expedia Group, Inc. (NASDAQ:EXPE).

How have hedgies been trading Expedia Group, Inc. (NASDAQ:EXPE)?

At the end of the fourth quarter, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. By comparison, 45 hedge funds held shares or bullish call options in EXPE a year ago. With hedgies' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

The largest stake in Expedia Group, Inc. (NASDAQ:EXPE) was held by PAR Capital Management, which reported holding $897.2 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $286.5 million position. Other investors bullish on the company included Altimeter Capital Management, First Pacific Advisors LLC, and Millennium Management.

As industrywide interest jumped, specific money managers have jumped into Expedia Group, Inc. (NASDAQ:EXPE) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the largest position in Expedia Group, Inc. (NASDAQ:EXPE). Two Sigma Advisors had $8.2 million invested in the company at the end of the quarter. Sander Gerber's Hudson Bay Capital Management also made a $5.8 million investment in the stock during the quarter. The following funds were also among the new EXPE investors: Andrew Feldstein and Stephen Siderow's Blue Mountain Capital, Matthew Hulsizer's PEAK6 Capital Management, and Joel Greenblatt's Gotham Asset Management.

Let's check out hedge fund activity in other stocks similar to Expedia Group, Inc. (NASDAQ:EXPE). We will take a look at Align Technology, Inc. (NASDAQ:ALGN), KB Financial Group, Inc. (NYSE:KB), FleetCor Technologies, Inc. (NYSE:FLT), and Omnicom Group Inc. (NYSE:OMC). This group of stocks' market values match EXPE's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALGN,37,1436721,0 KB,6,49264,2 FLT,33,1320948,-4 OMC,18,765348,-1 Average,23.5,893070,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $893 million. That figure was $2212 million in EXPE's case. Align Technology, Inc. (NASDAQ:ALGN) is the most popular stock in this table. On the other hand KB Financial Group, Inc. (NYSE:KB) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Expedia Group, Inc. (NASDAQ:EXPE) 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 EXPE wasn't in this group. Hedge funds that bet on EXPE were disappointed as the stock returned 8.2% 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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