Sometimes when I tell my friends how my investment strategies specialize in media, entertainment, leisure, communications, and related technologies, they seem surprised that I could have two successful money management businesses built around such a narrow focus. I point out that my self-defined universe of investable stocks numbers at least 400.
The next question is often, "But aren’t the stocks you invest in highly correlated?" The answer is yes, but not as much you might think.
I’ve been reminded of the diversity in media and communications several times recently. A journalist at the Hollywood Reporter
asked me about DreamWorks Animation
(NASDAQ:DWA) over the weekend for an article he was working on regarding the possibility that the company would be sold. About 10 minutes later, news broke that Tom Rothman was leaving as head of Fox Filmed Entertainment just weeks after a deal was finalized for Fox to replace Paramount as DreamWorks film distributor.
Monday night, Liberty Media
(NASDAQ:LMCA) announced that it was converting half of its preferred stock stake in Sirius XM Satellite Radio
(NASDAQ:SIRI) into voting common shares. The move gives Liberty 32% of the voting power at Sirius, effectively allowing Liberty to nominate and elect its own directors at the next Sirius annual meeting. Clearly, the end game for Liberty taking control of Sirius and defining the future financial strategy for both companies is coming shortly. Tuesday morning I listened to the first quarterly conference call for newly public Manchester United
(NYSE:MANU). I have been short ManU since the IPO last month at $14.
The stock just looks expensive and player costs seem to never stop escalating. However, listening to the discussion about sponsorship opportunities in Asia and the United States was a stark reminder that even a soccer club can be a worldwide advertising and promotion vehicle. Beginning in 2014, General Motors'
(NYSE:GM) Chevrolet division will be the sole sponsor on ManU’s jersey. One of the largest advertisers in the United States is globally branding its largest division using a soccer team!
Animated films, satellite radio, the most significant media investor of the current generation, the world’s most popular and successful sports franchise, the world’s largest automaker, and one of the world’s largest advertisers. These companies share a focus on consumer spending. Much of that spending is discretionary in nature. Looking through the prism of the consumer tying these companies together, there is a definite overlap in what drives their businesses. In that sense, the stocks are going to be correlated.
Yet, does the success of the new DreamWorks film have anything to do with whether Manchester United can win the Champions League and do so with a roster that does not cost so much as to offset the revenue windfall? On the other hand, General Motors car sales directly impact Sirius XM’s subscriber count. Yet, the endgame for Liberty and Sirius has more to do with taxes, the health of global credit markets, management changes, and the determination of a single investor to realize maximum value for his company’s largest single investment.
Sure, as a portfolio manager with a specialization, I face some challenges making sure my portfolio has sufficient diversification. However, I sure am lucky to be part of a global business -- several global businesses, in fact -- that is as diverse, interesting, and exciting as media, entertainment and communications. Minyanville’s subscriber base shares the same diversity. We all have a lot of challenges but I think we are pretty lucky to be part of our not-so-little niche.
Liberty Media is a net long position in the Entermedia Funds. Manchester United is a net short position in the Entermedia Funds. Entermedia is a long/short equity hedge fund focused on media, entertainment, leisure, communications and related technologies. Steve Birenberg is co-portfolio manager of Entermedia, owns a stake in the funds' investment management company and has personal monies invested in the funds. Liberty Media is widely held by Northlake Capital Management LLC, including in Steve Birenberg's personal accounts. Steve is sole proprietor of Northlake, a long only registered investment adviser.
This column was previously published by SNL Kagan on www.snl.com.
No positions in stocks mentioned.
Entermedia is a long/short equity hedge fund focused on media, communic=
ations, and related technologies. Steve Birenberg is co-portfolio manager o=
f Entermedia, owns a stake in the Funds' investment management compan=
y, and has personal monies invested in the Funds. CBS and Discovery Communi=
cations are widely held by Northlake Capital Management, LLC, including in =
Steve Birenberg's personal accounts. Steve is sole proprietor of Nort=
hlake, a long only registered investment advisor.
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