Was The Smart Money Right About Crowding Into Peloton Interactive, Inc. (PTON)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Peloton Interactive, Inc. (NASDAQ:PTON).

Peloton Interactive, Inc. (NASDAQ:PTON) was in 50 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. PTON investors should be aware of an increase in support from the world’s most elite money managers recently. There were 36 hedge funds in our database with PTON holdings at the end of March. Our calculations also showed that PTON 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.

In the 21st century investor’s toolkit there are a lot of tools stock traders can use to assess their holdings. Two of the most under-the-radar tools are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the best picks of the elite investment managers can outclass their index-focused peers by a solid amount (see the details here).

Glen Kacher of Light Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We go through lists like the 10 best high dividend stocks to buy to identify solid dividend stocks trading at rock bottom prices. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s go over the fresh hedge fund action surrounding Peloton Interactive, Inc. (NASDAQ:PTON).

Hedge fund activity in Peloton Interactive, Inc. (NASDAQ:PTON)

At the end of June, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 39% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PTON over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Among these funds, Tiger Global Management LLC held the most valuable stake in Peloton Interactive, Inc. (NASDAQ:PTON), which was worth $306.2 million at the end of the third quarter. On the second spot was Coatue Management which amassed $297 million worth of shares. Woodson Capital Management, Renaissance Technologies, and Darsana Capital Partners 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 16.46% of its 13F portfolio. Woodson Capital Management is also relatively very bullish on the stock, dishing out 10.23 percent of its 13F equity portfolio to PTON.

Now, key hedge funds were leading the bulls’ herd. Darsana Capital Partners, managed by Anand Desai, established the biggest position in Peloton Interactive, Inc. (NASDAQ:PTON). Darsana Capital Partners had $144.4 million invested in the company at the end of the quarter. James Crichton’s Hitchwood Capital Management also made a $75.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Nancy Zevenbergen’s Zevenbergen Capital Investments, Christopher R. Hansen’s Valiant Capital, and Glen Kacher’s Light Street 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 CGI Inc. (NYSE:GIB), Fox Corporation (NASDAQ:FOX), Fox Corporation (NASDAQ:FOXA), Maxim Integrated Products Inc. (NASDAQ:MXIM), Laboratory Corp. of America Holdings (NYSE:LH), Amcor plc (NYSE:AMCR), and Pioneer Natural Resources Company (NYSE:PXD). This group of stocks’ market valuations are closest to PTON’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $698 million. That figure was $2110 million in PTON’s case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand Amcor plc (NYSE:AMCR) is the least popular one with only 16 bullish hedge fund positions. Peloton Interactive, Inc. (NASDAQ:PTON) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PTON is 87.2. 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 gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on PTON as the stock returned 112.1% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.