Finance

Media Funds Ride Waves of Uncertainty

Some worry over Title II, Comcast-TWC; others find opportunity 3/02/2015 8:00 AM Eastern
TakeAway

Uncertainty over regulations and the Comcast-TWC deal made the fourth quarter a mixed bag for media-sector mutual funds.

The fourth quarter was a mixed bag for media mutual funds.

 

Some major firms took the threat of stricter regulation and uncertainty around the pending Comcast-Time Warner Cable merger as a sign to reduce their distribution positions, while others saw the declines in some of the stocks as a buying opportunity. Still others may merely have decided to engage in a little year-end profit-taking, according to some analysts.

 

Whatever the reason, it was a volatile quarter for some stocks, with two large media funds — FMR LLC, parent of the Fidelity family of mutual funds and Capital Research Global Investors, the billion fund created by now-retired media investing legend Gordon Crawford — selling huge blocks of Comcast stock.

 

BIG SELLERS

 

According to its quarterly filings with the Securities and Exchange Commission, FMR sold 16.3 million shares of Comcast class-A common stock and 12.9 million shares of its class- A special common shares (its non-voting “K” stock). Capital Research, which has been rejiggering its portfolio ever since Crawford’s retirement in 2012, unloaded about 12 million class-A Comcast shares and 3 million class-A Special Common Shares in the period, per SEC filings.

 

The sales were made during a quarter where Comcast stock was up 9.6% ($5.08 per share) but was sinking lower in the aftermath of President Obama’s backing for reclassifying broadband as a Title II common-carrier service. While Comcast stock had recovered from the 4% drop on Nov. 10, the day the president endorsed stricter regulation, it had been on a downturn in the last few days of the year, dipping by about 1.5%. So far this year Comcast stock has been stable, up less than 1% (22 cents each) since Dec. 31.

 

While the sales were substantial, both funds still hold large positions in Comcast — FMR ended the fourth quarter with 71.7 million Comcast “A” shares and Capital Research still has 35.5 million “A” shares and 17 million “K” shares.

 

Other funds saw an opportunity in Comcast shares in the quarter. Janus Capital, an early backer of the cable giant, added 4.5 million Comcast shares in the quarter, while State Street Corp. bought 6.1 million shares.

 

Fears concerning Title II and the Comcast-TWC deal could have spurred some selling, but that those fears are unwarranted, Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak said.

 

MERGER CONCERNS

 

“I think there has been some fear about the Comcast-TWC deal close and the Title II noise that may have caused folks to sell, but cable has nicely outperformed the S&P 500 over the last five-plus years, a trend I expect to continue,” Wlodarczak said. He added that once the Comcast deal clears — and he puts the odds at 70-30 that it will — another boost for the stocks is likely.

 

Other analysts aren’t quite so optimistic. BTIG Research media analyst Rich Greenfield has said for months that he believes the Comcast-TWC merger will be blocked, mainly because of the dominance the post-merger Comcast would hold over the broadband market. With the Federal Communications Commission redefining broadband service as a 25 Megabits-per-second service, instead of 4 Mbps, Comcast-TWC would be the only broadband choice for 63% of the homes in its combined footprint, Greenfield said.

 

While the Comcast-TWC debate continued, there were some new entrants into the sector, especially on the programming side. Driven by a sharp decline in its stock price over the past several months, at least three funds substantially boosted their holdings in Discovery Communications, with Vulcan Value Partners, a Birmingham, Ala.-based fund, acquiring 12.3 million shares in the period and Meritage Group, a San Francisco-based hedge fund, adding 3.3 million Discovery shares in the period.

 

Viacom stock, which dipped as much as 9% early in the quarter but finished the period up slightly, also was a focus for some companies, with Janus Capital shedding about 3 million shares of the programmer in the period and FMR selling 5 million shares.

 

The Feeling Is Mutual

 

Media-centered mutual funds ran the gamut in the fourth quarter, with some shedding shares in large distributors as others beefed up on programming stocks. Some of the larger buys and sales during the period:

 

Big Buys:

Vulcan Value Partners: Discovery Communications, 12.3 million shares

Meritage Group: Discovery Communications, 3.3 million shares

Berkshire Hathaway: 21st Century Fox, 4.7 million shares

Janus Capital Management: Comcast (A), 4.5 million shares

State Street Corp.: Comcast (A), 6.1 million shares

 

Big Sales:

FMR LLC: Comcast (A), 16.3 million shares; Comcast (K), 12.9 million shares

Lone Pine Capital: Comcast (A), 13.8 million

Janus Capital Management: Viacom (B), 2.98 million shares

Capital Research Global Investors: Comcast (A), 11.9 million shares

Capital Guardian Trust: Comcast (A), 1.3 million

SOURCE: SEC filings

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