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Did Hedge Funds Drop The Ball On Frontline Ltd (FRO) ?

Reymerlyn Martin

Does Frontline Ltd (NYSE:FRO) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Hedge fund interest in Frontline Ltd (NYSE:FRO) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare FRO to other stocks including Playa Hotels & Resorts N.V. (NASDAQ:PLYA), Continental Building Products Inc (NYSE:CBPX), and Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) to get a better sense of its popularity.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Crispin Odey

Let's take a look at the new hedge fund action regarding Frontline Ltd (NYSE:FRO).

How are hedge funds trading Frontline Ltd (NYSE:FRO)?

At Q4's end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2018. By comparison, 4 hedge funds held shares or bullish call options in FRO 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.

FRO_apr2019

More specifically, Odey Asset Management Group was the largest shareholder of Frontline Ltd (NYSE:FRO), with a stake worth $18.9 million reported as of the end of December. Trailing Odey Asset Management Group was Renaissance Technologies, which amassed a stake valued at $10.2 million. PEAK6 Capital Management, Citadel Investment Group, and Element Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Frontline Ltd (NYSE:FRO) has faced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there was a specific group of funds who were dropping their entire stakes last quarter. Intriguingly, Noam Gottesman's GLG Partners dumped the largest stake of all the hedgies monitored by Insider Monkey, worth about $0.4 million in stock. Michael Platt and William Reeves's fund, BlueCrest Capital Mgmt., also sold off its stock, about $0.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Frontline Ltd (NYSE:FRO) but similarly valued. We will take a look at Playa Hotels & Resorts N.V. (NASDAQ:PLYA), Continental Building Products Inc (NYSE:CBPX), Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI), and Atkore International Group Inc. (NYSE:ATKR). This group of stocks' market caps are closest to FRO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLYA,20,391454,5 CBPX,16,82997,-2 SPPI,17,83291,-6 ATKR,17,90206,-7 Average,17.5,161987,-2.5 [/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 $162 million. That figure was $31 million in FRO's case. Playa Hotels & Resorts N.V. (NASDAQ:PLYA) is the most popular stock in this table. On the other hand Continental Building Products Inc (NYSE:CBPX) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Frontline Ltd (NYSE:FRO) is even less popular than CBPX. Hedge funds clearly dropped the ball on FRO as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on FRO as the stock returned 47.2% and outperformed the market by an even larger margin.

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

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