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Did Hedge Funds Make The Right Call On Frontline Ltd (FRO) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Frontline Ltd (NYSE:FRO) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Frontline Ltd (NYSE:FRO) was in 24 hedge funds’ portfolios at the end of March. FRO has seen an increase in activity from the world’s largest hedge funds in recent months. There were 17 hedge funds in our database with FRO positions at the end of the previous quarter. Our calculations also showed that FRO 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.

To the average investor there are a lot of methods investors put to use to evaluate stocks. Two of the most innovative methods are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the best investment managers can beat the broader indices by a significant margin (see the details here).

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. 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 if you have any good ideas send us an email. With all of this in mind let’s go over the key hedge fund action encompassing Frontline Ltd (NYSE:FRO).

How have hedgies been trading Frontline Ltd (NYSE:FRO)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 41% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in FRO a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is FRO A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Crispin Odey’s Odey Asset Management Group has the biggest position in Frontline Ltd (NYSE:FRO), worth close to $24.2 million, corresponding to 4% of its total 13F portfolio. On Odey Asset Management Group’s heels is Paul Marshall and Ian Wace of Marshall Wace LLP, with a $16.9 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism comprise D. E. Shaw’s D E Shaw, Renaissance Technologies and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Odey Asset Management Group allocated the biggest weight to Frontline Ltd (NYSE:FRO), around 4.02% of its 13F portfolio. No Street Capital is also relatively very bullish on the stock, earmarking 1.84 percent of its 13F equity portfolio to FRO.

As industrywide interest jumped, specific money managers have been driving this bullishness. No Street Capital, managed by Jeff Osher, created the largest position in Frontline Ltd (NYSE:FRO). No Street Capital had $9.1 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also initiated a $8.8 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors, and Andrew Byington’s Appian Way Asset Management.

Let’s go over hedge fund activity in other stocks similar to Frontline Ltd (NYSE:FRO). These stocks are Alarm.com Holdings Inc (NASDAQ:ALRM), Alector, Inc. (NASDAQ:ALEC), EPR Properties (NYSE:EPR), and Wyndham Destinations, Inc. (NYSE:WYND). This group of stocks’ market values are similar to FRO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALRM 23 153195 -5
ALEC 15 416696 2
EPR 23 149422 -1
WYND 25 200324 -3
Average 21.5 229909 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $230 million. That figure was $117 million in FRO’s case. Wyndham Destinations, Inc. (NYSE:WYND) is the most popular stock in this table. On the other hand Alector, Inc. (NASDAQ:ALEC) is the least popular one with only 15 bullish hedge fund positions. Frontline Ltd (NYSE:FRO) 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 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately FRO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FRO were disappointed as the stock returned -21.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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