Is ViacomCBS (VIAC) a good investment choice?

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Capital of Bronte, an investment management company, has published its letter to investors “Amalthea Fund” for the first quarter of 2021 – a copy of which can be found downloaded here. The fund generated a return of 8.17% for the first quarter of 2021, outperforming the S&P 500 index which returned + 4.4% for the same period. You can take a look at the top 5 holdings of the fund to get an overview of their top bets for 2021.

Bronte Capital, in its letter to investors for the first quarter of 2021, mentioned ViacomCBS Inc. (NASDAQ: VIAC) and shared their views on the company. ViacomCBS Inc. is a New York-based mass media company that currently has a market capitalization of $ 26 billion. Year-to-date, VIAC has delivered a 7.43% return, bringing its 12-month earnings to 68.97%. As of June 18, 2021, the stock closed at $ 40.03 per share.

Here’s what Bronte Capital has to say about ViacomCBS Inc. in its Q1 2021 letter to investors:

“The Archos Capital debacle is extraordinary. Archegos is (or was) a family office of the former manager of Tiger Asia, a large hedge fund. Tiger Asia was the offspring of the Tiger Fund complex, and manager Bill Hwang was a protégé of Julian Robertson, one of the grandfathers of the hedge fund industry. This fund had a pedigree. Still, it imploded, leaving multibillion-dollar losses for some counterparties, namely Nomura and Credit Suisse. The predecessor fund Tiger Asia closed after the company closed (not the director) pleaded guilty to criminal fraud. Bill Hwang (the director) was rich, very wealthy. Press accounts put his personal fortune at around $ 8 billion. at seven times, risking everything to buy more stocks at ever higher prices. And he’s done it in a slightly diverse portfolio, often in controversial names. The Wall Street Journal reports “[Hwang] liked to focus on stocks that were heavily ‘shorted’ or had a high level of bearish positions, according to someone who knows the trades… ”.

A controversial, highly leveraged and slightly diversified name portfolio will kill you in the end. You will inevitably be wrong one day – a position will drop 25% or more suddenly – and leverage and margin calls will do the rest. It is just extraordinary to us that someone with so much experience in the market plays in a way that is reminiscent of the hordes of retail investors buying junk inventory on phone apps from Robinhood or other specialty brokers. in retail.

But if the reports are to be believed, it was not a stockpile of garbage that triggered the rout. It was Viacom, a global media giant with US network CBS, Paramount Pictures, MTV and many other media assets. Of course, Viacom is a controversial move: old media is degrading and young people watch much less network TV. But this is a real business even if the price chart looks like a penny stock fraud.

Management of Viacom looked at the stock chart, did the math and decided to issue stock. Viacom made a large and unexpected investment near the highs and the stock quickly fell 25%. This was enough to trigger sequential margin calls across the entire Archegos portfolio.

Eagle eyes will notice that Viacom Still trading above what it was at the end of 2020. You might wonder how a stock returning to levels last seen a few months ago can trigger a multibillion dollar rout. The answer: degenerate gambling. The manager just increased those profits and bought more stocks in even more controversial stocks (some of which were sadly short and tight, even though those positions were deliberately even smaller than usual). “

Our calculations show that ViacomCBS Inc. (NASDAQ: VIAC) does not belong to our list of 30 most popular stocks among hedge funds. At the end of the first quarter of 2021, ViacomCBS Inc. was in 89 hedge fund portfolios, compared to 44 fund in the fourth quarter of 2020. VIAC has generated a return of -58.88% in the last 3 months.

The reputation of hedge funds as savvy investors has been tarnished over the past decade, as their hedged returns could not keep up with the unhedged returns of stock indices. Our research has shown that small-cap hedge fund stock selection managed to beat the market by double digits every year between 1999 and 2016, but the margin for outperformance has shrunk in recent years. Nonetheless, we were still able to identify in advance a select group of hedge funds that have outperformed S&P 500 ETFs by 115 percentage points since March 2017 (see details here). We were also able to identify in advance a select group of hedge funds that underperformed the market by 10 percentage points per year between 2006 and 2017. Interestingly, the margin of underperformance of these stocks has increased in recent years. Investors who are long in the market and short on these stocks would have reported more than 27% per year between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next big investing idea. For example, an activist hedge fund wants to buy this biotech share at $ 26 for $ 50. We therefore recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best stocks of batteries to choose the next Tesla which will offer a 10x return. Even though we only recommend positions in a tiny fraction of the companies we analyze, we check as many stocks as possible. We read letters from hedge fund investors and listen to market arguments at hedge fund conferences. You can subscribe to our free daily newsletter at our home page.

Disclosure: none. This article was originally published on Monkey initiate.

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