How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding frontdoor, inc. (NASDAQ:FTDR) and determine whether hedge funds had an edge regarding this stock.
frontdoor, inc. (NASDAQ:FTDR) was in 33 hedge funds’ portfolios at the end of March. FTDR investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. There were 37 hedge funds in our database with FTDR positions at the end of the previous quarter. Our calculations also showed that FTDR 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.
At the moment there are tons of methods stock market investors employ to value stocks. A couple of the most innovative methods are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the top investment managers can outclass the broader indices by a very impressive margin (see the details here).
At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind let’s analyze the key hedge fund action regarding frontdoor, inc. (NASDAQ:FTDR).
How are hedge funds trading frontdoor, inc. (NASDAQ:FTDR)?
At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FTDR over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Iridian Asset Management held the most valuable stake in frontdoor, inc. (NASDAQ:FTDR), which was worth $77.2 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $75.4 million worth of shares. Maverick Capital, Rima Senvest Management, and Hawk Ridge 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 StackLine Partners allocated the biggest weight to frontdoor, inc. (NASDAQ:FTDR), around 15.01% of its 13F portfolio. Billings Capital Management is also relatively very bullish on the stock, earmarking 14.09 percent of its 13F equity portfolio to FTDR.
Seeing as frontdoor, inc. (NASDAQ:FTDR) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of money managers who were dropping their full holdings in the first quarter. At the top of the heap, Richard Chilton’s Chilton Investment Company cut the largest stake of the “upper crust” of funds followed by Insider Monkey, worth an estimated $51.4 million in stock. Israel Englander’s fund, Millennium Management, also said goodbye to its stock, about $13.1 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 4 funds in the first quarter.
Let’s now take a look at hedge fund activity in other stocks similar to frontdoor, inc. (NASDAQ:FTDR). These stocks are Polaris Inc. (NYSE:PII), Selective Insurance Group (NASDAQ:SIGI), BlackLine, Inc. (NASDAQ:BL), and Texas Pacific Land Trust (NYSE:TPL). All of these stocks’ market caps are closest to FTDR’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $274 million. That figure was $553 million in FTDR’s case. Polaris Inc. (NYSE:PII) is the most popular stock in this table. On the other hand Texas Pacific Land Trust (NYSE:TPL) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks frontdoor, inc. (NASDAQ:FTDR) 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on FTDR as the stock returned 27.5% in Q2 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.
Disclosure: None. This article was originally published at Insider Monkey.