For the major media mutual funds, the second quarter was a period of intense profit-taking.
As the prices of cable stocks continued to soar in the months between March 31 and June 30, the temptation to reap the financial rewards of that bubble was strong. A look at the quarterly financial documents of five top funds — Capital Research Global Investors, Janus Capital Management, Franklin Resources, BlackRock and FMR — showed that large sales of media stocks outnumbered purchases by almost 2 to 1.
And the size of the transactions were also markedly different — according to data gleaned from the quarterly reports, the average sale for the funds involved 2.86 million shares, while the average buy was for 1.3 million shares.
At the same time, the funds managed to maintain significant positions in the stocks they sold. For example, Capital Research sold about 26.9 million shares of Comcast in the quarter, but managed to hold on to 53.4 million shares of the top U.S. MSO. In addition, Capital Research held about 86.3 million shares of AT&T at the end of the quarter, despite selling about 10.2 million shares.
One stock where Capital Research significantly reduced its holdings was Time Warner Cable. According to the fund’s quarterly statement, Capital Research sold 11.3 million shares of TWC in the period, reducing its holdings from 18.7 million shares to 7.4 million shares as of June 30. The fund further reduced that stake to 5.1 million shares by July 31, according to a 13G filing with the SEC earlier this month (“Longtime TWC Backer Sheds Part of Stake in Cable Firm,” Aug. 19, page 29).
Sales of Time Warner Cable shares were commonplace in the period, mainly because it was one of the hottest stocks in the quarter. TWC shares rose about 17% from March 28 to June 28, largely on deal speculation.
In mid-June, reports surfaced that Charter Communications, 27%-owned by cable legend John Malone’s Liberty Media, was seeking a combination with Time Warner Cable. Despite TWC’s efforts to rebuff the overtures, the market continued to boost MSO stocks in the hopes that some deal could be made.
Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak said the sales were expected given the robust run of the stocks so far this year. In the first half, cable MSO stocks were up by about 31%.
“Some of these names had big runs — Charter in particular — and investors are likely taking some profit,” Wlodarczak said, adding that stance could continue into the third quarter as takeout speculation continues. And though there is some concern about over-the-top competition from Google, Intel and possibly Sony, the stocks have plenty of upside left, he said.
“I think we are in the middle of typical summer swoon, frankly along with the market, but the fall should be good for the stocks,” Wlodarczak added.
A spike in cable stocks led to heavy selling by mutual funds with holdings in the sector during Q2.
BUY LOW …
Several top mutual funds took the opportunity in the second quarter to reap some profits from the recent run-up in cable stock prices. A snapshot of some of the bigger sales from the top institutions in the period:
Capital Research Global Investors:
Comcast (A): 26.9 million shares
Time Warner Cable: 11.3 million shares
DirecTV: 1.6 million shares
Disney: 2.9 million shares
Cablevision: 2.3 million shares
DirecTV: 1.5 million shares
Time Warner Inc.: 5.8 million shares
Time Warner Cable: 2 million shares
Comcast (A): 1.6 million shares
AT&T: 752,850 shares
DirecTV: 705,827 shares
Dish: 586,523 shares
Comcast (A): 9.6 million shares
Discovery Communications: 2.4 million shares
Walt Disney Co.: 1.5 million shares
Time Warner Inc.: 1.6 million shares
Discovery Communications: 1.1 million shares
Liberty Global: 1 million shares
Liberty Media: 210,307 shares
Liberty Global: 499,801 shares
Comcast (K): 285,053 shares
Liberty Interactive: 104,402 shares
DirecTV: 6.4 million shares
AT&T: 3.2 million shares
Liberty Interactive: 3 million shares
SOURCE: Securities and Exchange Commission filings