Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Ferrari N.V. (NYSE:RACE), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Ferrari N.V. (NYSE:RACE) was in 36 hedge funds’ portfolios at the end of the fourth quarter of 2019. RACE shareholders have witnessed an increase in support from the world’s most elite money managers recently. There were 34 hedge funds in our database with RACE holdings at the end of the previous quarter. Our calculations also showed that RACE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Daniel Sundheim of D1 Capital Partners
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s take a gander at the new hedge fund action surrounding Ferrari N.V. (NYSE:RACE).
What does smart money think about Ferrari N.V. (NYSE:RACE)?
At Q4’s end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in RACE a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ferrari N.V. (NYSE:RACE) was held by D1 Capital Partners, which reported holding $423.4 million worth of stock at the end of September. It was followed by Ako Capital with a $406.5 million position. Other investors bullish on the company included Darsana Capital Partners, Melvin Capital Management, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Alatus Capital allocated the biggest weight to Ferrari N.V. (NYSE:RACE), around 49.77% of its 13F portfolio. Aquamarine Capital Management is also relatively very bullish on the stock, dishing out 15.27 percent of its 13F equity portfolio to RACE.
As one would reasonably expect, some big names were breaking ground themselves. Ako Capital, managed by Nicolai Tangen, established the most valuable position in Ferrari N.V. (NYSE:RACE). Ako Capital had $406.5 million invested in the company at the end of the quarter. Dan Loeb’s Third Point also initiated a $24.8 million position during the quarter. The other funds with brand new RACE positions are Israel Englander’s Millennium Management, Guy Shahar’s DSAM Partners, and Michael Gelband’s ExodusPoint Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Ferrari N.V. (NYSE:RACE) but similarly valued. We will take a look at Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Barclays PLC (NYSE:BCS), Ecopetrol S.A. (NYSE:EC), and Keurig Dr Pepper Inc. (NASDAQ:KDP). This group of stocks’ market values match RACE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| REGN | 37 | 931314 | 2 |
| BCS | 11 | 115501 | -4 |
| EC | 11 | 229258 | 1 |
| KDP | 26 | 593887 | 3 |
| Average | 21.25 | 467490 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $467 million. That figure was $2004 million in RACE’s case. Regeneron Pharmaceuticals Inc (NASDAQ:REGN) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 11 bullish hedge fund positions. Ferrari N.V. (NYSE:RACE) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. Hedge funds were also right about betting on RACE, though not to the same extent, as the stock returned -13.6% during the first two months of 2020 (through March 11th) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
