We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about frontdoor, inc. (NASDAQ:FTDR) in this article.
frontdoor, inc. (NASDAQ:FTDR) was in 37 hedge funds’ portfolios at the end of December. FTDR shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. There were 39 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 Q4 rankings and see the video at the end of this article for Q3 rankings).
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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Richard Chilton of Chilton Investment Company
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the recent hedge fund action regarding frontdoor, inc. (NASDAQ:FTDR).
What have hedge funds been doing with frontdoor, inc. (NASDAQ:FTDR)?
At Q4’s end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in FTDR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Iridian Asset Management was the largest shareholder of frontdoor, inc. (NASDAQ:FTDR), with a stake worth $116.8 million reported as of the end of September. Trailing Iridian Asset Management was Renaissance Technologies, which amassed a stake valued at $91.4 million. Engle Capital, Rima Senvest Management, and Chilton Investment Company 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 Engle Capital allocated the biggest weight to frontdoor, inc. (NASDAQ:FTDR), around 13.25% of its 13F portfolio. StackLine Partners is also relatively very bullish on the stock, earmarking 12.25 percent of its 13F equity portfolio to FTDR.
Judging by the fact that frontdoor, inc. (NASDAQ:FTDR) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedge funds that slashed their entire stakes heading into Q4. Intriguingly, Joseph Samuels’s Islet Management said goodbye to the biggest position of the 750 funds followed by Insider Monkey, comprising about $12.1 million in stock, and Vikas Lunia’s Lunia Capital was right behind this move, as the fund dumped about $6.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to frontdoor, inc. (NASDAQ:FTDR). We will take a look at Five9 Inc (NASDAQ:FIVN), Equity Commonwealth (NYSE:EQC), Service Properties Trust (NASDAQ:SVC), and Alcoa Corporation (NYSE:AA). This group of stocks’ market caps match FTDR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FIVN | 35 | 632108 | 2 |
| EQC | 22 | 140966 | -4 |
| SVC | 17 | 59382 | 2 |
| AA | 30 | 660355 | -3 |
| Average | 26 | 373203 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $373 million. That figure was $682 million in FTDR’s case. Five9 Inc (NASDAQ:FIVN) is the most popular stock in this table. On the other hand Service Properties Trust (NASDAQ:SVC) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks frontdoor, inc. (NASDAQ:FTDR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately FTDR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FTDR were disappointed as the stock returned -26.2% during the first two and a half months of 2020 (through March 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
