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Hedge Funds Have Never Been This Bullish On Funko, Inc. (FNKO)

Asma UL Husna

After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Funko, Inc. (NASDAQ:FNKO).

Funko, Inc. (NASDAQ:FNKO) shareholders have witnessed an increase in enthusiasm from smart money in recent months. FNKO was in 23 hedge funds' portfolios at the end of September. There were 17 hedge funds in our database with FNKO holdings at the end of the previous quarter. Our calculations also showed that FNKO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]

Noam Gottesman GLG Partners

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the fresh hedge fund action encompassing Funko, Inc. (NASDAQ:FNKO).

Hedge fund activity in Funko, Inc. (NASDAQ:FNKO)

At Q3's end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 35% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in FNKO a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

The largest stake in Funko, Inc. (NASDAQ:FNKO) was held by Woodson Capital Management, which reported holding $18.5 million worth of stock at the end of September. It was followed by Millennium Management with a $17.6 million position. Other investors bullish on the company included Driehaus Capital, Citadel Investment Group, and Manatuck Hill Partners. In terms of the portfolio weights assigned to each position Manatuck Hill Partners allocated the biggest weight to Funko, Inc. (NASDAQ:FNKO), around 4.23% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, designating 3.26 percent of its 13F equity portfolio to FNKO.

As industrywide interest jumped, key hedge funds have jumped into Funko, Inc. (NASDAQ:FNKO) headfirst. Laurion Capital Management, managed by Benjamin A. Smith, established the biggest position in Funko, Inc. (NASDAQ:FNKO). Laurion Capital Management had $4.5 million invested in the company at the end of the quarter. Josh Donfeld and David Rogers's Castle Hook Partners also initiated a $3.5 million position during the quarter. The other funds with new positions in the stock are Alec Litowitz and Ross Laser's Magnetar Capital, Principal Global Investors's Columbus Circle Investors, and Noam Gottesman's GLG Partners.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Funko, Inc. (NASDAQ:FNKO) but similarly valued. We will take a look at Warrior Met Coal, Inc. (NYSE:HCC), Silk Road Medical, Inc. (NASDAQ:SILK), Lindsay Corporation (NYSE:LNN), and Meridian Bancorp, Inc. (NASDAQ:EBSB). This group of stocks' market caps match FNKO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HCC,27,233578,-4 SILK,7,52706,-4 LNN,8,193429,2 EBSB,10,88413,-1 Average,13,142032,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $98 million in FNKO's case. Warrior Met Coal, Inc. (NYSE:HCC) is the most popular stock in this table. On the other hand Silk Road Medical, Inc. (NASDAQ:SILK) is the least popular one with only 7 bullish hedge fund positions. Funko, Inc. (NASDAQ:FNKO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FNKO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FNKO were disappointed as the stock returned -30.6% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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