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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). 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 Floor & Decor Holdings, Inc. (NYSE:FND) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is Floor & Decor Holdings, Inc. (NYSE:FND) a bargain? The smart money was turning less bullish. The number of long hedge fund positions went down by 4 recently. Our calculations also showed that FND isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). FND was in 23 hedge funds' portfolios at the end of the first quarter of 2020. There were 27 hedge funds in our database with FND holdings at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Steven Cohen of Point72 Asset Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we're going to analyze the latest hedge fund action regarding Floor & Decor Holdings, Inc. (NYSE:FND).
What does smart money think about Floor & Decor Holdings, Inc. (NYSE:FND)?
At Q1's end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in FND over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Floor & Decor Holdings, Inc. (NYSE:FND) was held by Abdiel Capital Advisors, which reported holding $117 million worth of stock at the end of September. It was followed by Two Creeks Capital Management with a $96.4 million position. Other investors bullish on the company included Joho Capital, Broad Bay Capital, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Joho Capital allocated the biggest weight to Floor & Decor Holdings, Inc. (NYSE:FND), around 19.92% of its 13F portfolio. Billings Capital Management is also relatively very bullish on the stock, dishing out 14.16 percent of its 13F equity portfolio to FND.
Since Floor & Decor Holdings, Inc. (NYSE:FND) has faced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of fund managers that slashed their entire stakes last quarter. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management dropped the largest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $20.8 million in stock. Jack Woodruff's fund, Candlestick Capital Management, also cut its stock, about $20.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Floor & Decor Holdings, Inc. (NYSE:FND) but similarly valued. We will take a look at Empire State Realty Trust Inc (NYSE:ESRT), Seaboard Corporation (NYSE:SEB), Littelfuse, Inc. (NASDAQ:LFUS), and Globant SA (NYSE:GLOB). This group of stocks' market values are similar to FND's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESRT,16,151926,-2 SEB,15,108625,-3 LFUS,22,218011,1 GLOB,17,81232,-1 Average,17.5,139949,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $400 million in FND's case. Littelfuse, Inc. (NASDAQ:LFUS) is the most popular stock in this table. On the other hand Seaboard Corporation (NYSE:SEB) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Floor & Decor Holdings, Inc. (NYSE:FND) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on FND as the stock returned 79.7% in Q2 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.
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Disclosure: None. This article was originally published at Insider Monkey.