We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Peloton Interactive, Inc. (NASDAQ:PTON) based on those filings.
Peloton Interactive, Inc. (NASDAQ:PTON) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. PTON was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 27 hedge funds in our database with PTON holdings at the end of the previous quarter. Our calculations also showed that PTON 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).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Ricky Sandler of Eminence Capital
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 let’s take a gander at the latest hedge fund action encompassing Peloton Interactive, Inc. (NASDAQ:PTON).
What does smart money think about Peloton Interactive, Inc. (NASDAQ:PTON)?
At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in PTON over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Eminence Capital was the largest shareholder of Peloton Interactive, Inc. (NASDAQ:PTON), with a stake worth $73.1 million reported as of the end of September. Trailing Eminence Capital was Miller Value Partners, which amassed a stake valued at $62.1 million. Woodson Capital Management, Citadel Investment Group, and Woodson Capital 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 Woodson Capital Management allocated the biggest weight to Peloton Interactive, Inc. (NASDAQ:PTON), around 9.05% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, dishing out 7.2 percent of its 13F equity portfolio to PTON.
As one would reasonably expect, key money managers have jumped into Peloton Interactive, Inc. (NASDAQ:PTON) headfirst. Alta Park Capital, managed by Bijan Modanlou, Joseph Bou-Saba, and Jayaveera Kodali, established the most valuable position in Peloton Interactive, Inc. (NASDAQ:PTON). Alta Park Capital had $24.9 million invested in the company at the end of the quarter. Philippe Laffont’s Coatue Management also made a $11.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, David Fiszel’s Honeycomb Asset Management, and Seymour Sy Kaufman and Michael Stark’s Crosslink Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Peloton Interactive, Inc. (NASDAQ:PTON) but similarly valued. These stocks are Assurant, Inc. (NYSE:AIZ), Santander Consumer USA Holdings Inc (NYSE:SC), Huaneng Power International Inc (NYSE:HNP), and American Homes 4 Rent (NYSE:AMH). All of these stocks’ market caps are closest to PTON’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AIZ | 25 | 886201 | -5 |
| SC | 27 | 845363 | 2 |
| HNP | 3 | 2790 | -1 |
| AMH | 23 | 320922 | -4 |
| Average | 19.5 | 513819 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $514 million. That figure was $383 million in PTON’s case. Santander Consumer USA Holdings Inc (NYSE:SC) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Peloton Interactive, Inc. (NASDAQ:PTON) is more popular among hedge funds. 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 22.3% in 2020 through March 16th but still managed to beat the market by 3.2 percentage points. Hedge funds were also right about betting on PTON as the stock returned -21.7% so far in Q1 (through March 16th) 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.
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.
