Media Funds Scooping Up Shares In DirecTV

Three of the Top Five Players Up Their Stake in Satellite Giant

By Mike Farrell -- Multichannel News, 9/6/2010 12:01:00 AM

For a handful of media mutual funds, the second quarter could be summed up in four simple words: I Want My DirecTV.

DirecTV, the nation’s largest satellite-TV provider, was at the head of the buy list for three of the top five media-centric mutual funds, led by Capital Research Global Investors, the $210 billion Los Angeles-based fund created by media legend Gordon Crawford.

Capital Research bought nearly 17 million shares of DirecTV in the second quarter, according to documents filed with the Securities and Exchange Commission, raising its position from 36.4 million shares in Q1 to 53.3 million shares in the second quarter. And it wasn’t the only major fund enamored with the satellite giant.

Janus Capital Management, the $92 billion Denver-based mutual fund, bought 2.86 million shares of DirecTV in the second quarter, beefing up its stake in the company to 5.6 million shares from 2.8 million in the prior quarter. FMR Corp., the $430 billion fund that is the parent of the Fidelity family of mutual funds, added about 5.8 million DirecTV shares in the period, increasing its stake to 36.6 million shares.

AT&T, TWI GAIN
Telco AT&T also was a popular stock in the period — Capital Research, FMR and $181 billion fund Bank of New York Mellon were big buyers — as was Time Warner Inc., with FMR purchasing nearly 4 million of its shares in the period.

Wunderlich Securities media analyst Matt Harrigan didn’t want to comment on individual fund activity, but said that DirecTV stock purchases make sense in that the satellite giant had a strong second quarter and has made strides in returning value to shareholders.

In the second quarter, DirecTV maintained its net new subscriber growth trend — it added 100,000 new customers, identical to the first quarter — and said it had repurchased about $1.72 billion of its own stock in the June period. The company also authorized another $2 billion for stock repurchases over time.

“When you look at the repurchases, when you look at the upside in Latin America, you have to believe that is a good place to be, even in a difficult equity market,” Harrigan said.

Harrigan was a little stumped by any large purchases of telco stocks, however.

During the period, according to SEC documents, Capital Research added 13.7 million AT&T shares, while FMR added 14.3 million and Bank of New York Mellon added 6 million shares of the telco.

“It’s pretty apparent that [video digital subscriber line] is pretty limited. I don’t know why people would be buying AT&T,” Harrigan said.

On the selling side, Verizon Communications, Viacom and Dish Network were at the top of many of the funds’ lists.

FMR was the biggest seller of Verizon stock, shedding 24.5 million shares of the telco in the period, reducing its stake from 51.4 million to 26.9 million shares. Another big seller was Capital Research, which dumped 7.7 million Verizon shares, lowering its stake from 39.3 million to 31.6 million shares.

Miller Tabak media analyst David Joyce said the reason for the Verizon sell-off could in part be the telco’s announcement in April that it would cease building out its FiOS network, instead concentrating on growing the markets it has already completed.

But the full reason lies with the individual funds, which do not comment on their buying and selling activity, Joyce added.

“Who knows, other than these firms themselves, when they bought and sold?” he said.

It is possible that profit-taking was a factor in what funds bought and sold during the quarter, but there were no wild price fluctuations. DirecTV stock actually declined about 1% between April 1 and June 30, from $34.14 to $33.92 each, but the shares reached a peak of $38 during the quarter. Verizon shares were down about 10% in the period, from $29.20 on April 1 to $26.18 on June 30. Those shares peaked at about $29.62 each during the period.

DISH WEAKNESSES SHOW
But the reasoning behind one of the other big sell-off — Dish Network — was more evident. Dish had a disappointing second quarter, losing about 19,000 subscribers in a period where analysts were expecting gains of as many as 129,000 customers. The subscriber losses appeared to refuel investor fears that Dish could return to negative growth.

FMR was the biggest seller of Dish stock, shedding 8.5 million shares in the period. Other funds either didn’t own the stock — Capital Research and Capital Guardian Trust — or had relatively small positions in the No. 2 satellite company. For example, Janus Capital sold about 250,000 Dish shares in the period, reducing its overall stake in Dish to about 740,000 shares. Bank of New York also sold about 564,000 Dish shares in the period, knocking down its overall position in the company to about 1.3 million shares.

The funds also sold large positions in programmer Viacom, which, despite an increase in advertising sales, has performed below its peers in the past several quarters. For example, Viacom’s domestic ad sales increased 1% in the first quarter (compared to 9% for Discovery Communications and 9% for Time Warner Inc.’s Turner Networks) and rose 4% in the second quarter — behind 13% increases at Discovery and a 14% rise at Turner.

Viacom’s stock price also declined about 4% ($1.41 each) during the quarter, from $37.07 per share on April 1 to $35.66 each on June 30.