Hedge Funds Are Selling Roku, Inc. (ROKU)

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of June 30th. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Roku, Inc. (NASDAQ:ROKU).

Roku, Inc. (NASDAQ:ROKU) was in 61 hedge funds’ portfolios at the end of June. The all time high for this statistic is 63. ROKU investors should pay attention to a decrease in activity from the world’s largest hedge funds recently. There were 63 hedge funds in our database with ROKU holdings at the end of March. Our calculations also showed that ROKU isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 79 percentage points since March 2017 (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.

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a look at the new hedge fund action regarding Roku, Inc. (NASDAQ:ROKU).

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

At the end of the second quarter, a total of 61 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. By comparison, 41 hedge funds held shares or bullish call options in ROKU 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, ARK Investment Management was the largest shareholder of Roku, Inc. (NASDAQ:ROKU), with a stake worth $2177.6 million reported as of the end of June. Trailing ARK Investment Management was Citadel Investment Group, which amassed a stake valued at $883.5 million. Whale Rock Capital Management, D E Shaw, and Two Sigma Advisors 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 Ogborne Capital allocated the biggest weight to Roku, Inc. (NASDAQ:ROKU), around 17.86% of its 13F portfolio. Greenhaven Road Investment Management is also relatively very bullish on the stock, earmarking 8.47 percent of its 13F equity portfolio to ROKU.

Judging by the fact that Roku, Inc. (NASDAQ:ROKU) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few fund managers that elected to cut their entire stakes heading into Q3. Intriguingly, Vikram Kumar’s Kuvari Partners said goodbye to the largest investment of the “upper crust” of funds followed by Insider Monkey, worth about $17.5 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dumped its stock, about $17.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q3.

Let’s now take a look at 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 Boston Scientific Corporation (NYSE:BSX), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Dominion Energy Inc. (NYSE:D), Ford Motor Company (NYSE:F), ICICI Bank Limited (NYSE:IBN), Waste Management, Inc. (NYSE:WM), and Eaton Corporation plc (NYSE:ETN). This group of stocks’ market values are closest to ROKU’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BSX 51 3029136 7
REGN 48 1595301 9
D 34 1262051 -5
F 55 2106196 6
IBN 28 2473600 -3
WM 39 3600334 7
ETN 40 1062179 -9
Average 42.1 2161257 1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.1 hedge funds with bullish positions and the average amount invested in these stocks was $2161 million. That figure was $5632 million in ROKU’s case. Ford Motor Company (NYSE:F) is the most popular stock in this table. On the other hand ICICI Bank Limited (NYSE:IBN) is the least popular one with only 28 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 82. 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 25.7% in 2021 through September 27th and still beat the market by 6.2 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 -30.1% since the end of the second quarter (through 9/27) 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 most of these stocks already outperformed the market since 2019.

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