Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Frontline Ltd (NYSE:FRO).
Is Frontline Ltd (NYSE:FRO) the right pick for your portfolio? Hedge funds are becoming more confident. The number of long hedge fund bets went up by 3 recently. Our calculations also showed that FRO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). FRO was in 17 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 14 hedge funds in our database with FRO holdings at the end of the previous quarter.
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 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.
Crispin Odey of Odey Asset Management Group
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the key hedge fund action surrounding Frontline Ltd (NYSE:FRO).
What have hedge funds been doing with Frontline Ltd (NYSE:FRO)?
At Q4’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in FRO a year ago. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Frontline Ltd (NYSE:FRO), with a stake worth $36.5 million reported as of the end of September. Trailing Renaissance Technologies was Odey Asset Management Group, which amassed a stake valued at $31.4 million. Marshall Wace LLP, Citadel Investment Group, and Millennium Management 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 Odey Asset Management Group allocated the biggest weight to Frontline Ltd (NYSE:FRO), around 3.28% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, earmarking 0.47 percent of its 13F equity portfolio to FRO.
Consequently, key money managers were breaking ground themselves. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), assembled the most valuable position in Frontline Ltd (NYSE:FRO). Schonfeld Strategic Advisors had $4.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $2.9 million investment in the stock during the quarter. The following funds were also among the new FRO investors: Till Bechtolsheimer’s Arosa Capital Management, Mark Broach’s Manatuck Hill Partners, and Noam Gottesman’s GLG Partners.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Frontline Ltd (NYSE:FRO) but similarly valued. These stocks are First Financial Bancorp (NASDAQ:FFBC), Innospec Inc. (NASDAQ:IOSP), Werner Enterprises, Inc. (NASDAQ:WERN), and Premier Inc (NASDAQ:PINC). All of these stocks’ market caps match FRO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FFBC | 5 | 6404 | -2 |
| IOSP | 18 | 114008 | -2 |
| WERN | 21 | 140926 | 1 |
| PINC | 14 | 219803 | -7 |
| Average | 14.5 | 120285 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $115 million in FRO’s case. Werner Enterprises, Inc. (NASDAQ:WERN) is the most popular stock in this table. On the other hand First Financial Bancorp (NASDAQ:FFBC) is the least popular one with only 5 bullish hedge fund positions. Frontline Ltd (NYSE:FRO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately FRO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FRO were disappointed as the stock returned -37.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
