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. Keeping this in mind, let’s take a look at whether Formula One Group (NASDAQ:FWONA) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Formula One Group (NASDAQ:FWONA) was in 22 hedge funds’ portfolios at the end of December. FWONA investors should pay attention to an increase in hedge fund interest in recent months. There were 20 hedge funds in our database with FWONA positions at the end of the previous quarter. Our calculations also showed that FWONA 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).
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.
Mason Hawkins of Southeastern Asset Management
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 view the recent hedge fund action regarding Formula One Group (NASDAQ:FWONA).
Hedge fund activity in Formula One Group (NASDAQ:FWONA)
At the end of the fourth quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FWONA over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in Formula One Group (NASDAQ:FWONA) was held by Ancient Art (Teton Capital), which reported holding $113.5 million worth of stock at the end of September. It was followed by Southeastern Asset Management with a $102.6 million position. Other investors bullish on the company included Ashe Capital, Renaissance Technologies, and Polar Capital. In terms of the portfolio weights assigned to each position Ancient Art (Teton Capital) allocated the biggest weight to Formula One Group (NASDAQ:FWONA), around 16.88% of its 13F portfolio. Kontiki Capital is also relatively very bullish on the stock, dishing out 6.27 percent of its 13F equity portfolio to FWONA.
As industrywide interest jumped, specific money managers have jumped into Formula One Group (NASDAQ:FWONA) headfirst. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, assembled the largest position in Formula One Group (NASDAQ:FWONA). Polar Capital had $8.1 million invested in the company at the end of the quarter. Parvinder Thiara’s Athanor Capital also made a $0.5 million investment in the stock during the quarter. The only other fund with a new position in the stock is Frederick DiSanto’s Ancora Advisors.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Formula One Group (NASDAQ:FWONA) but similarly valued. We will take a look at BeiGene, Ltd. (NASDAQ:BGNE), Pinnacle West Capital Corporation (NYSE:PNW), Shaw Communications Inc (NYSE:SJR), and ON Semiconductor Corporation (NASDAQ:ON). This group of stocks’ market caps resemble FWONA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BGNE | 16 | 2963457 | 6 |
| PNW | 25 | 817992 | -2 |
| SJR | 12 | 136938 | -1 |
| ON | 32 | 562929 | 7 |
| Average | 21.25 | 1120329 | 2.5 |
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 $1120 million. That figure was $428 million in FWONA’s case. ON Semiconductor Corporation (NASDAQ:ON) is the most popular stock in this table. On the other hand Shaw Communications Inc (NYSE:SJR) is the least popular one with only 12 bullish hedge fund positions. Formula One Group (NASDAQ:FWONA) 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately FWONA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FWONA were disappointed as the stock returned -55.2% 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.
