How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Formula One Group (NASDAQ:FWONK) and determine whether hedge funds had an edge regarding this stock.
Formula One Group (NASDAQ:FWONK) has seen an increase in activity from the world’s largest hedge funds in recent months. Formula One Group (NASDAQ:FWONK) was in 49 hedge funds’ portfolios at the end of the second quarter of 2020. There were 37 hedge funds in our database with FWONK positions at the end of the first quarter. Our calculations also showed that FWONK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Philippe Laffont of Coatue Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s go over the recent hedge fund action surrounding Formula One Group (NASDAQ:FWONK).
Hedge fund activity in Formula One Group (NASDAQ:FWONK)
At second quarter’s end, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 32% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in FWONK a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Eminence Capital was the largest shareholder of Formula One Group (NASDAQ:FWONK), with a stake worth $185.8 million reported as of the end of September. Trailing Eminence Capital was Ashe Capital, which amassed a stake valued at $185.6 million. OZ Management, Citadel Investment Group, and Tremblant Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Cowbird Capital allocated the biggest weight to Formula One Group (NASDAQ:FWONK), around 17.89% of its 13F portfolio. Ashe Capital is also relatively very bullish on the stock, designating 14.25 percent of its 13F equity portfolio to FWONK.
As industrywide interest jumped, key money managers have jumped into Formula One Group (NASDAQ:FWONK) headfirst. Tremblant Capital, managed by Brett Barakett, created the most outsized position in Formula One Group (NASDAQ:FWONK). Tremblant Capital had $102.2 million invested in the company at the end of the quarter. Philippe Laffont’s Coatue Management also initiated a $28.1 million position during the quarter. The other funds with brand new FWONK positions are Mitch Kuflik and Rob Sobel’s Brahman Capital, Scott Coulter’s Cowbird Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s go over hedge fund activity in other stocks similar to Formula One Group (NASDAQ:FWONK). We will take a look at WestRock Company (NYSE:WRK), BorgWarner Inc. (NYSE:BWA), Vail Resorts, Inc. (NYSE:MTN), Hill-Rom Holdings, Inc. (NYSE:HRC), Vornado Realty Trust (NYSE:VNO), Reynolds Consumer Products Inc. (NASDAQ:REYN), and Exelixis, Inc. (NASDAQ:EXEL). This group of stocks’ market valuations match FWONK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WRK | 32 | 461872 | 6 |
| BWA | 35 | 802792 | 5 |
| MTN | 37 | 753210 | 0 |
| HRC | 30 | 944643 | 0 |
| VNO | 17 | 126380 | -8 |
| REYN | 17 | 319911 | 0 |
| EXEL | 39 | 1170545 | 9 |
| Average | 29.6 | 654193 | 1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.6 hedge funds with bullish positions and the average amount invested in these stocks was $654 million. That figure was $1402 million in FWONK’s case. Exelixis, Inc. (NASDAQ:EXEL) is the most popular stock in this table. On the other hand Vornado Realty Trust (NYSE:VNO) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Formula One Group (NASDAQ:FWONK) is more popular among hedge funds. Our overall hedge fund sentiment score for FWONK is 86.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on FWONK as the stock returned 22.9% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
