Funds Rotate Out of Comcast, News


The mantra for media
mutual funds in 2009 was rotation,
rotation, rotation.

Some of the larger mediacentric
funds spent the last three
months of 2009 selling large
chunks of their holdings in such
stalwarts as Comcast and News
Corp., and focused their sights
on companies like DirecTV, Time
Warner Cable and Viacom, according
to their year-end reports
filed with the Securities and Exchange

Collins Stewart media analyst
Tom Eagan had been predicting
a rotation out of Comcast in favor
of other stocks for months for one
reason: its pursuit of NBC Universal.
Now that Comcast’s joint
venture with General Electric for
a controlling interest in NBCU is
expected to be approved by yearend,
some investors are looking

“We figured that although the
company may be hedging its
bets a little bit between the content
and the distribution side,
they may not be able to take advantage
of that until 2011,” Eagan
said. “Th erefore, there would be a
lit bit of a lag on the stock for the
next six to 12 months. At the same
time, we’ve seen appreciation in
other cable stocks like Time Warner
Cable and Cablevision.”

Time Warner Cable has
gained favor since March
when it split from former
parent Time Warner Inc. The
pure-play cable stock is a darling
of several analysts for its strong
free-cash-flow generation (about
$1.9 billion in 2009) and its low
debt (it is expected to reduce its
leverage ratio to about 3.25 times
cash flow in the first quarter).

Cablevision, which recently
spun off its Madison Square
Garden unit, has been an analyst
favorite for several reasons,
including high penetration rates
for new services and consistent
free-cash-flow growth.

Both companies had strong increases
in their stock prices last
year — Time Warner Cable shares
gained 86% ($19.17) and Cablevision
rose 49% ($8.44) in 2009. A
few funds took advantage of those
gains. Bank of New York Mellon,
for example, grew its Time Warner
Cable position from 618,680
shares at the beginning of the
year, when the stock was trading
at about $22.22, to more than
8.5 million shares by the end of
the third quarter. In the fourth
quarter, when the price had risen
above $43, the fund sold 4.8 million

According to year-end reports
filed with the SEC, Comcast was
the big sale for many mutual
funds in the fourth quarter, with
FMR Corp. — the parent of the Fidelity
family of mutual funds —
unloading the biggest block: 15.7
million shares of Comcast Class
A and 5.8 million shares of Comcast
special common stock, also
known as “K” shares. Other big
Comcast sellers included Capital
Research Global Investors, the
Los Angeles-based fund led by
media legend Gordon Crawford;
Janus Capital Management; and
Dodge & Cox.

According to the SEC documents,
Capital Research sold
7.4 million Comcast “K” shares
and 3.7 million Comcast Class-
A shares in the period; Janus, an
early backer of Comcast, shed 6.5
million Class-A shares and Dodge
& Cox unloaded about 1.8 million
Comcast Class-A shares.

It should be noted that these
funds still hold a huge amount
of Comcast shares. For example,
Dodge & Cox owned about 135.6
million shares of Comcast, Capital
Research about 28 million “K”
shares and 22 million “A” shares,
and FMR about 44.5 million “K”
shares and 13.3 million “A” shares
as of Dec. 31.

Part of the reason for the rotation
simply could be that Comcast
stock was one of the poorer performers
in the sector for the year
— Comcast Class-A shares were
down about 6% in 2009, while the
entire MSO sector rose 42% — but
rallied late in the year. Comcast
Class A was as low as $13.95 in
November when the NBCU speculation
was high, but closed the
year at $16.86.

“The reason why the stock was
down was because people were
selling,” Eagan said. “I think
people were selling because they
weren’t quite sure of the near -
to medium-term impact of the
NBCU deal.”

Miller Tabak analyst David
Joyce agreed that Comcast stock
was pressured in October and
November as speculation swirled
about an NBCU deal.

Though the stock improved
when the deal that was announced
had terms favorable to
Comcast, Joyce pointed out there
is still a long way to go before the
deal is approved.

“There will be a year of headlines
before this deal is done, likely
with conditions, so there is an
overhang that has driven some investors
to look elsewhere for more
immediate returns, which would
explain the selling,” Joyce said.

News Corp. also was on the
“for sale” list for five of the seven
funds examined.

Oppenheimer sold 6.3 million
News Corp. shares; Bank of New
York Mellon shed 10.1 million;
Capital Research sold 6.3 million
and Dodge & Cox dumped
26.7 million shares in the fourth

Profit-taking could have played
a role: News Corp. shares, down
54% ($11.12) in 2008, rose 56%
($5.75) in 2009.

The Fox networks’ parent also
finished strong, rising about 20%
($2.63) in the fourth quarter.

Joyce said funds selling News
Corp. might have traded into
Viacom, which hadn’t risen
as much in the period but was
beginning to see some upside
from ratings and ad revenue
growth from new shows.

Several funds beefed up their
Viacom positions in the period,
with Oppenheimer, Bank of New
York, FMR and Janus all raising
their holdings considerably.

Eagan said investors might
merely have been switching horses
in the retransmission-consent
and cable-carriage race. News recently
endured a high-profile battle
with Time Warner Cable over
retransmission consent — and attracted
much higher fees as a result,
according to some reports.

Many funds that sold News
Corp. shares beefed up on The
Walt Disney Co., which has both
broadcast (ABC) and cable (ESPN)
properties that are scheduled for
renewal later this year.

“There is more immediate upside,”
in those stocks, Eagan said.

On the buying side, funds appeared
to load up heavily on DirecTV.
Capital Research bought
16.6 million shares of the satellite
giant in the quarter, while Bank
of New York added 4.3 million, Janus
added 4.8 million and Dodge
& Cox added 4.9 million.

Another big target of buyers:
Viacom. Oppenheimer added
3.6 million Viacom shares in
the quarter, and others joined
the party as well, including Bank
of New York Mellon (1.1 million
shares); FMR (5.3 million); and
Janus (4.1 million).

Eagan said the shift toward
DirecTV illustrates the satellite
giant’s strides in cash-flow growth
as well as subscriber additions.

“That’s not really in the stock
price yet,” Eagan added. “People
are looking for an entry point into
the stock.”