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Hedge Funds Aren’t Crazy About Funko, Inc. (FNKO) Anymore

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Funko, Inc. (NASDAQ:FNKO) and determine whether hedge funds had an edge regarding this stock.

Is Funko, Inc. (NASDAQ:FNKO) a marvelous investment today? The best stock pickers were turning less bullish. The number of bullish hedge fund bets dropped by 2 lately. Our calculations also showed that FNKO 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Millennium Management, Catapult Capital Management

Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the recent hedge fund action regarding Funko, Inc. (NASDAQ:FNKO).

How have hedgies been trading Funko, Inc. (NASDAQ:FNKO)?

At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the fourth quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in FNKO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, Woodson Capital Management was the largest shareholder of Funko, Inc. (NASDAQ:FNKO), with a stake worth $7.2 million reported as of the end of September. Trailing Woodson Capital Management was Millennium Management, which amassed a stake valued at $1.4 million. Renaissance Technologies, Two Sigma Advisors, and G2 Investment Partners 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 Woodson Capital Management allocated the biggest weight to Funko, Inc. (NASDAQ:FNKO), around 1.02% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.1 percent of its 13F equity portfolio to FNKO.

Since Funko, Inc. (NASDAQ:FNKO) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of funds that elected to cut their positions entirely last quarter. Interestingly, Joel Ramin’s 12 West Capital Management dumped the largest position of the 750 funds followed by Insider Monkey, comprising close to $5.1 million in stock. Mark Broach’s fund, Manatuck Hill Partners, also said goodbye to its stock, about $5.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Funko, Inc. (NASDAQ:FNKO) but similarly valued. These stocks are Weyco Group, Inc. (NASDAQ:WEYS), comScore, Inc. (NASDAQ:SCOR), Transcat, Inc. (NASDAQ:TRNS), and NACCO Industries, Inc. (NYSE:NC). This group of stocks’ market values are similar to FNKO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WEYS 4 4976 1
SCOR 18 60183 -1
TRNS 7 36708 -1
NC 5 10318 -4
Average 8.5 28046 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $11 million in FNKO’s case. comScore, Inc. (NASDAQ:SCOR) is the most popular stock in this table. On the other hand Weyco Group, Inc. (NASDAQ:WEYS) is the least popular one with only 4 bullish hedge fund positions. Funko, Inc. (NASDAQ:FNKO) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 15.5 percentage points. Hedge funds were also right about betting on FNKO as the stock returned 45.4% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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