Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about DraftKings Inc. (NASDAQ:DKNG) in this article.
DraftKings Inc. (NASDAQ:DKNG) has experienced a decrease in hedge fund sentiment recently. DraftKings Inc. (NASDAQ:DKNG) was in 26 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 53. There were 43 hedge funds in our database with DKNG positions at the end of the first quarter. Our calculations also showed that DKNG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.
Cliff Asness of AQR Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we’re going to go over the new hedge fund action regarding DraftKings Inc. (NASDAQ:DKNG).
Do Hedge Funds Think DKNG Is A Good Stock To Buy Now?
At second quarter’s end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from the first quarter of 2020. On the other hand, there were a total of 53 hedge funds with a bullish position in DKNG a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Catherine D. Wood’s ARK Investment Management has the biggest position in DraftKings Inc. (NASDAQ:DKNG), worth close to $711 million, amounting to 1.3% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $202.6 million call position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism consist of D. E. Shaw’s D E Shaw, Ken Griffin’s Citadel Investment Group and Geraldine McManus and Andrew Walter’s Granger Management. In terms of the portfolio weights assigned to each position Granger Management allocated the biggest weight to DraftKings Inc. (NASDAQ:DKNG), around 9.33% of its 13F portfolio. Diker Management is also relatively very bullish on the stock, setting aside 4.01 percent of its 13F equity portfolio to DKNG.
Seeing as DraftKings Inc. (NASDAQ:DKNG) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of funds who were dropping their full holdings heading into Q3. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest position of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $211.3 million in stock. Eashwar Krishnan’s fund, Tybourne Capital Management, also cut its stock, about $138.1 million worth. These transactions are interesting, as total hedge fund interest fell by 17 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks similar to DraftKings Inc. (NASDAQ:DKNG). These stocks are MGM Resorts International (NYSE:MGM), Church & Dwight Co., Inc. (NYSE:CHD), Gartner Inc (NYSE:IT), Fortis Inc. (NYSE:FTS), StoneCo Ltd. (NASDAQ:STNE), Avantor, Inc. (NYSE:AVTR), and Halliburton Company (NYSE:HAL). This group of stocks’ market values are closest to DKNG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MGM | 59 | 2889161 | 2 |
| CHD | 35 | 1383073 | 8 |
| IT | 39 | 1988886 | -1 |
| FTS | 9 | 185027 | -1 |
| STNE | 44 | 2739991 | 5 |
| AVTR | 44 | 2178398 | -4 |
| HAL | 29 | 1336150 | 1 |
| Average | 37 | 1814384 | 1.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1814 million. That figure was $928 million in DKNG’s case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand Fortis Inc. (NYSE:FTS) is the least popular one with only 9 bullish hedge fund positions. DraftKings Inc. (NASDAQ:DKNG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DKNG is 19.7. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and surpassed the market again by 3.1 percentage points. Unfortunately DKNG wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); DKNG investors were disappointed as the stock returned -16.4% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
Follow Draftkings Holdings Inc. (NASDAQ:DKNG)
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Disclosure: None. This article was originally published at Insider Monkey.
