Did The Smart Money Play Roku, Inc. (ROKU) Correctly?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 867 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th, when the S&P 500 Index was trading around the 4300 level. Since then investors decided to bet on the economic recovery and a stock market rebound even though we experienced a temporary correction in January. In this article you are going to find out whether hedge funds thought Roku, Inc. (NASDAQ:ROKU) was a good investment heading into the fourth quarter and how the stock traded in comparison to the top hedge fund picks.

Roku, Inc. (NASDAQ:ROKU) was in 57 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 63. ROKU shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. There were 61 hedge funds in our database with ROKU positions at the end of the second quarter. Our calculations also showed that ROKU isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to check out the latest hedge fund action surrounding Roku, Inc. (NASDAQ:ROKU).

Sahm Adrangi Kerrisdale Capital

Sahm Adrangi of Kerrisdale Capital

Do Hedge Funds Think ROKU Is A Good Stock To Buy Now?

At Q3’s end, a total of 57 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from one quarter earlier. On the other hand, there were a total of 59 hedge funds with a bullish position in ROKU a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, ARK Investment Management held the most valuable stake in Roku, Inc. (NASDAQ:ROKU), which was worth $1484.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $988.6 million worth of shares. Whale Rock Capital Management, Citadel Investment Group, and Steadfast Capital 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 Kuvari Partners allocated the biggest weight to Roku, Inc. (NASDAQ:ROKU), around 30.25% of its 13F portfolio. Ogborne Capital is also relatively very bullish on the stock, earmarking 20.32 percent of its 13F equity portfolio to ROKU.

Due to the fact that Roku, Inc. (NASDAQ:ROKU) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers that elected to cut their positions entirely by the end of the third quarter. Interestingly, John Overdeck and David Siegel’s Two Sigma Advisors said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, comprising an estimated $373.8 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also said goodbye to its stock, about $189.7 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 4 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Roku, Inc. (NASDAQ:ROKU) but similarly valued. We will take a look at Schlumberger Limited. (NYSE:SLB), Lucid Group Inc. (NASDAQ:LCID), Trane Technologies plc (NYSE:TT), Digital Realty Trust, Inc. (NYSE:DLR), Walgreens Boots Alliance Inc (NASDAQ:WBA), Pioneer Natural Resources Company (NYSE:PXD), and American Electric Power Company, Inc. (NASDAQ:AEP). All of these stocks’ market caps are closest to ROKU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SLB 39 1062933 -2
LCID 18 432623 18
TT 39 1147583 2
DLR 28 253530 -2
WBA 37 850173 -4
PXD 48 958649 3
AEP 36 751595 7
Average 35 779584 3.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $780 million. That figure was $2829 million in ROKU’s case. Pioneer Natural Resources Company (NYSE:PXD) is the most popular stock in this table. On the other hand Lucid Group Inc. (NASDAQ:LCID) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Roku, Inc. (NASDAQ:ROKU) is more popular among hedge funds. Our overall hedge fund sentiment score for ROKU is 78.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. Unfortunately, ROKU wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ROKU were disappointed as the stock returned -47.6% since the end of the third quarter (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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