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Formula One Group (FWONK): Hedge Funds In Wait-and-See Mode

Asma UL Husna

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Formula One Group (NASDAQ:FWONK).

Formula One Group (NASDAQ:FWONK) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 37 hedge funds' portfolios at the end of the first quarter of 2020. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Encompass Health Corporation (NYSE:EHC), The Interpublic Group of Companies, Inc. (NYSE:IPG), and Charles River Laboratories International Inc. (NYSE:CRL) to gather more data points. Our calculations also showed that FWONK 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). Video: Watch our video about the top 5 most popular hedge fund stocks.

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. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 51 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

[caption id="attachment_340075" align="aligncenter" width="385"] Mason Hawkins of Southeastern Asset Management[/caption]

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's analyze the key hedge fund action regarding Formula One Group (NASDAQ:FWONK).

How have hedgies been trading Formula One Group (NASDAQ:FWONK)?

At Q1's end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FWONK over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Eminence Capital was the largest shareholder of Formula One Group (NASDAQ:FWONK), with a stake worth $220.1 million reported as of the end of September. Trailing Eminence Capital was Ashe Capital, which amassed a stake valued at $159.3 million. OZ Management, Citadel Investment Group, and Southeastern Asset Management 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 Kontiki Capital allocated the biggest weight to Formula One Group (NASDAQ:FWONK), around 15.38% of its 13F portfolio. Ashe Capital is also relatively very bullish on the stock, earmarking 14.75 percent of its 13F equity portfolio to FWONK.

Judging by the fact that Formula One Group (NASDAQ:FWONK) has faced declining sentiment from hedge fund managers, it's safe to say that there was a specific group of fund managers who sold off their positions entirely in the third quarter. At the top of the heap, Richard Driehaus's Driehaus Capital cut the largest stake of the "upper crust" of funds followed by Insider Monkey, comprising close to $43.5 million in stock, and James Parsons's Junto Capital Management was right behind this move, as the fund sold off about $41.7 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Formula One Group (NASDAQ:FWONK) but similarly valued. We will take a look at Encompass Health Corporation (NYSE:EHC), The Interpublic Group of Companies, Inc. (NYSE:IPG), Charles River Laboratories International Inc. (NYSE:CRL), and Hubbell Incorporated (NYSE:HUBB). This group of stocks' market caps are similar to FWONK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EHC,33,556709,4 IPG,21,594460,-5 CRL,36,862557,4 HUBB,15,272338,-8 Average,26.25,571516,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $572 million. That figure was $1125 million in FWONK's case. Charles River Laboratories International Inc. (NYSE:CRL) is the most popular stock in this table. On the other hand Hubbell Incorporated (NYSE:HUBB) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Formula One Group (NASDAQ:FWONK) 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 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on FWONK as the stock returned 27.2% so far in Q2 (through the end of May) 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.

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