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Were Hedge Funds Right About Crowding Into Formula One Group (FWONK)?

Abigail Fisher
·6 min read

In this article we will take a look at whether hedge funds think Formula One Group (NASDAQ:FWONK) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Formula One Group (NASDAQ:FWONK) the right pick for your portfolio? Investors who are in the know were betting on the stock. The number of long hedge fund bets moved up by 12 in recent months. Formula One Group (NASDAQ:FWONK) was in 49 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 54. Our calculations also showed that FWONK 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). There were 37 hedge funds in our database with FWONK holdings at the end of March. Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ricky Sandler of Eminence Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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. With all of this in mind we're going to review the key hedge fund action surrounding Formula One Group (NASDAQ:FWONK).

What have hedge funds been doing with Formula One Group (NASDAQ:FWONK)?

At the end of June, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from the first quarter of 2020. On the other hand, there were a total of 32 hedge funds with a bullish position in FWONK a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Formula One Group (NASDAQ:FWONK) was held by Eminence Capital, which reported holding $185.8 million worth of stock at the end of September. It was followed by Ashe Capital with a $185.6 million position. Other investors bullish on the company included OZ Management, Citadel Investment Group, and Tremblant Capital. In terms of the portfolio weights assigned to each position Cowbird Capital allocated the biggest weight to Formula One Group (NASDAQ:FWONK), around 17.89% of its 13F portfolio. Ashe Capital is also relatively very bullish on the stock, earmarking 14.25 percent of its 13F equity portfolio to FWONK.

As industrywide interest jumped, some big names have jumped into Formula One Group (NASDAQ:FWONK) headfirst. Tremblant Capital, managed by Brett Barakett, established the largest position in Formula One Group (NASDAQ:FWONK). Tremblant Capital had $102.2 million invested in the company at the end of the quarter. Philippe Laffont's Coatue Management also made a $28.1 million investment in the stock during the quarter. The following funds were also among the new FWONK investors: Mitch Kuflik and Rob Sobel's Brahman Capital, Scott Coulter's Cowbird Capital, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Let's go over hedge fund activity in other stocks similar to Formula One Group (NASDAQ:FWONK). We will take a look at WestRock Company (NYSE:WRK), BorgWarner Inc. (NYSE:BWA), Vail Resorts, Inc. (NYSE:MTN), Hill-Rom Holdings, Inc. (NYSE:HRC), Vornado Realty Trust (NYSE:VNO), Reynolds Consumer Products Inc. (NASDAQ:REYN), and Exelixis, Inc. (NASDAQ:EXEL). This group of stocks' market values match FWONK's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WRK,32,461872,6 BWA,35,802792,5 MTN,37,753210,0 HRC,30,944643,0 VNO,17,126380,-8 REYN,17,319911,0 EXEL,39,1170545,9 Average,29.6,654193,1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.6 hedge funds with bullish positions and the average amount invested in these stocks was $654 million. That figure was $1402 million in FWONK's case. Exelixis, Inc. (NASDAQ:EXEL) is the most popular stock in this table. On the other hand Vornado Realty Trust (NYSE:VNO) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Formula One Group (NASDAQ:FWONK) is more popular among hedge funds. Our overall hedge fund sentiment score for FWONK is 87.2. 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 returned 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on FWONK as the stock returned 17.5% since the end of June (through 10/23) 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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