Hedge Funds Are Souring On Ferrari N.V. (RACE)

In this article we are going to use hedge fund sentiment as a tool and determine whether Ferrari N.V. (NYSE:RACE) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Ferrari N.V. (NYSE:RACE) was in 26 hedge funds’ portfolios at the end of March. The all time high for this statistic is 36. RACE shareholders have witnessed a decrease in hedge fund interest recently. There were 29 hedge funds in our database with RACE positions at the end of the fourth quarter. Our calculations also showed that RACE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Gabriel Plotkin Melvin Capital Management

Gabriel Plotkin of Melvin Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery 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 glance at the latest hedge fund action encompassing Ferrari N.V. (NYSE:RACE).

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

Heading into the second quarter of 2021, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the fourth quarter of 2020. By comparison, 29 hedge funds held shares or bullish call options in RACE a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Ako Capital was the largest shareholder of Ferrari N.V. (NYSE:RACE), with a stake worth $234.1 million reported as of the end of March. Trailing Ako Capital was Melvin Capital Management, which amassed a stake valued at $214.5 million. Darsana Capital Partners, Third Point, and Arrowstreet Capital 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 Lansing Management allocated the biggest weight to Ferrari N.V. (NYSE:RACE), around 16.9% of its 13F portfolio. Aquamarine Capital Management is also relatively very bullish on the stock, earmarking 8.74 percent of its 13F equity portfolio to RACE.

Judging by the fact that Ferrari N.V. (NYSE:RACE) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of funds that decided to sell off their positions entirely heading into Q2. At the top of the heap, Daniel Sundheim’s D1 Capital Partners dumped the largest stake of the “upper crust” of funds watched by Insider Monkey, valued at about $137.1 million in stock. Antoine Firmenich and Richard Vogel’s fund, Alatus Capital, also dumped its stock, about $35.9 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 3 funds heading into Q2.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ferrari N.V. (NYSE:RACE) but similarly valued. These stocks are Cadence Design Systems Inc (NASDAQ:CDNS), Schlumberger Limited. (NYSE:SLB), Cummins Inc. (NYSE:CMI), The Travelers Companies Inc (NYSE:TRV), DocuSign, Inc. (NASDAQ:DOCU), Synopsys, Inc. (NASDAQ:SNPS), and Kinder Morgan Inc (NYSE:KMI). This group of stocks’ market valuations are closest to RACE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CDNS 30 1490527 -2
SLB 50 1141533 0
CMI 37 817545 -8
TRV 35 409418 1
DOCU 60 3232494 -7
SNPS 34 1655845 -6
KMI 38 1194030 -4
Average 40.6 1420199 -3.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.6 hedge funds with bullish positions and the average amount invested in these stocks was $1420 million. That figure was $1257 million in RACE’s case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand Cadence Design Systems Inc (NASDAQ:CDNS) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Ferrari N.V. (NYSE:RACE) is even less popular than CDNS. Our overall hedge fund sentiment score for RACE is 23.7. 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. Hedge funds dodged a bullet by taking a bearish stance towards RACE. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th but managed to beat the market again by 6.7 percentage points. Unfortunately RACE wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); RACE investors were disappointed as the stock returned 0.4% since the end of the first quarter (through 7/9) 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.