Were Hedge Funds Right About Virgin Galactic Holdings, Inc. (SPCE)?

Last year we predicted the arrival of the first US recession since 2009 and we told in advance 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 Virgin Galactic Holdings, Inc. (NYSE:SPCE).

Is Virgin Galactic Holdings, Inc. (NYSE:SPCE) going to take off soon? Money managers were becoming less confident. The number of bullish hedge fund bets dropped by 6 in recent months. Virgin Galactic Holdings, Inc. (NYSE:SPCE) was in 17 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 32. Our calculations also showed that SPCE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 23 hedge funds in our database with SPCE positions at the end of the fourth quarter.

In the 21st century investor’s toolkit there are a lot of methods shareholders put to use to grade stocks. A couple of the most useful methods are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the top money managers can outpace their index-focused peers by a healthy margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Cathie Wood of ARK Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Keeping this in mind we’re going to take a look at the recent hedge fund action surrounding Virgin Galactic Holdings, Inc. (NYSE:SPCE).

Do Hedge Funds Think SPCE Is A Good Stock To Buy Now?

At first quarter’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in SPCE a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Virgin Galactic Holdings, Inc. (NYSE:SPCE), with a stake worth $86.5 million reported as of the end of March. Trailing Renaissance Technologies was ARK Investment Management, which amassed a stake valued at $52.9 million. Citadel Investment Group, D E Shaw, and Citadel Investment Group 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 Fort Baker Capital Management allocated the biggest weight to Virgin Galactic Holdings, Inc. (NYSE:SPCE), around 1.68% of its 13F portfolio. Nantahala Capital Management is also relatively very bullish on the stock, dishing out 0.36 percent of its 13F equity portfolio to SPCE.

Because Virgin Galactic Holdings, Inc. (NYSE:SPCE) has faced bearish sentiment from hedge fund managers, logic holds that there is a sect of fund managers that elected to cut their positions entirely heading into Q2. Intriguingly, Noam Gottesman’s GLG Partners sold off the biggest position of all the hedgies watched by Insider Monkey, totaling close to $10.4 million in stock. Gregg Moskowitz’s fund, Interval Partners, also dropped its stock, about $9.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 6 funds heading into Q2.

Let’s go over hedge fund activity in other stocks similar to Virgin Galactic Holdings, Inc. (NYSE:SPCE). These stocks are Tripadvisor Inc (NASDAQ:TRIP), Phillips 66 Partners LP (NYSE:PSXP), Proofpoint Inc (NASDAQ:PFPT), OneMain Holdings Inc (NYSE:OMF), Mobile TeleSystems Public Joint Stock Company (NYSE:MBT), Bumble Inc. (NASDAQ:BMBL), and Digital Turbine Inc (NASDAQ:APPS). This group of stocks’ market values resemble SPCE’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $650 million. That figure was $211 million in SPCE’s case. Tripadvisor Inc (NASDAQ:TRIP) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 5 bullish hedge fund positions. Virgin Galactic Holdings, Inc. (NYSE:SPCE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SPCE is 29.9. 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately SPCE wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SPCE investors were disappointed as the stock returned -3.4% since the end of March (through 7/23) 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.

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