We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Virgin Galactic Holdings, Inc. (NYSE:SPCE) and determine whether hedge funds skillfully traded this stock.
Is Virgin Galactic Holdings, Inc. (NYSE:SPCE) the right pick for your portfolio? The best stock pickers were betting on the stock. The number of long hedge fund bets went up by 10 recently. Virgin Galactic Holdings, Inc. (NYSE:SPCE) was in 22 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 32. Our calculations also showed that SPCE isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we're going to take a look at the key hedge fund action regarding Virgin Galactic Holdings, Inc. (NYSE:SPCE).
How have hedgies been trading Virgin Galactic Holdings, Inc. (NYSE:SPCE)?
At the end of June, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 83% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards SPCE over the last 20 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Virgin Galactic Holdings, Inc. (NYSE:SPCE), which was worth $48.7 million at the end of the third quarter. On the second spot was Scopus Asset Management which amassed $10.4 million worth of shares. OZ Management, GLG Partners, and OZ 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 BlueMar Capital Management allocated the biggest weight to Virgin Galactic Holdings, Inc. (NYSE:SPCE), around 0.68% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, setting aside 0.67 percent of its 13F equity portfolio to SPCE.
Now, key hedge funds have jumped into Virgin Galactic Holdings, Inc. (NYSE:SPCE) headfirst. Scopus Asset Management, managed by Alexander Mitchell, created the largest position in Virgin Galactic Holdings, Inc. (NYSE:SPCE). Scopus Asset Management had $10.4 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also made a $6.9 million investment in the stock during the quarter. The following funds were also among the new SPCE investors: David Rodriguez-Fraile's BlueMar Capital Management, James Chen's Ovata Capital Management, and Nancy Zevenbergen's Zevenbergen Capital Investments.
Let's now take a look at hedge fund activity in other stocks similar to Virgin Galactic Holdings, Inc. (NYSE:SPCE). These stocks are Stantec Inc. (NYSE:STN), Fox Factory Holding Corp (NASDAQ:FOXF), Axis Capital Holdings Limited (NYSE:AXS), The Timken Company (NYSE:TKR), Strategic Education Inc (NASDAQ:STRA), PVH Corp (NYSE:PVH), and Coty Inc (NYSE:COTY). All of these stocks' market caps match SPCE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STN,5,47552,-7 FOXF,13,132172,3 AXS,35,661585,3 TKR,31,302095,1 STRA,21,274084,8 PVH,28,474978,10 COTY,26,135189,-7 Average,22.7,289665,1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.7 hedge funds with bullish positions and the average amount invested in these stocks was $290 million. That figure was $60 million in SPCE's case. Axis Capital Holdings Limited (NYSE:AXS) is the most popular stock in this table. On the other hand Stantec Inc. (NYSE:STN) 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 59. 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. 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 gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on SPCE as the stock returned 17.7% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.