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Did Hedge Funds Drop The Ball On Floor & Decor Holdings, Inc. (FND) ?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the second quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Floor & Decor Holdings, Inc. (NYSE:FND).

Floor & Decor Holdings, Inc. (NYSE:FND) was in 21 hedge funds’ portfolios at the end of June. FND investors should be aware of a decrease in enthusiasm from smart money lately. There were 31 hedge funds in our database with FND positions at the end of the previous quarter. Our calculations also showed that FND isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

FND_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a peek at the latest hedge fund action encompassing Floor & Decor Holdings, Inc. (NYSE:FND).

How have hedgies been trading Floor & Decor Holdings, Inc. (NYSE:FND)?

At Q2’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -32% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in FND a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Paul Marshall Marshall Wace

More specifically, Joho Capital was the largest shareholder of Floor & Decor Holdings, Inc. (NYSE:FND), with a stake worth $164.1 million reported as of the end of March. Trailing Joho Capital was Two Creeks Capital Management, which amassed a stake valued at $112.1 million. Marshall Wace LLP, Citadel Investment Group, and Broad Bay Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Since Floor & Decor Holdings, Inc. (NYSE:FND) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of money managers who sold off their positions entirely last quarter. It’s worth mentioning that Jonathan Auerbach’s Hound Partners dumped the biggest position of all the hedgies followed by Insider Monkey, totaling an estimated $36.2 million in stock. Lee Ainslie’s fund, Maverick Capital, also dropped its stock, about $12.7 million worth. These moves are interesting, as total hedge fund interest dropped by 10 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Floor & Decor Holdings, Inc. (NYSE:FND) but similarly valued. We will take a look at Service Properties Trust (NASDAQ:HPT), First Financial Bankshares Inc (NASDAQ:FFIN), Tribune Media Company (NYSE:TRCO), and Tempur Sealy International Inc. (NYSE:TPX). This group of stocks’ market caps match FND’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HPT 13 58292 2
FFIN 12 30841 -1
TRCO 31 1246968 3
TPX 33 1480589 4
Average 22.25 704173 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $704 million. That figure was $382 million in FND’s case. Tempur Sealy International Inc. (NYSE:TPX) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 12 bullish hedge fund positions. Floor & Decor Holdings, Inc. (NYSE:FND) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on FND as the stock returned 22.1% during the same time frame and outperformed the market by an even larger margin.

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

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