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Hedge Funds Never Been This Bullish On frontdoor, inc. (FTDR)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards frontdoor, inc. (NASDAQ:FTDR) and determine whether hedge funds skillfully traded this stock.

frontdoor, inc. (NASDAQ:FTDR) has experienced an increase in hedge fund sentiment lately. frontdoor, inc. (NASDAQ:FTDR) was in 41 hedge funds’ portfolios at the end of June. The all time high for this statistics is 40. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 33 hedge funds in our database with FTDR positions at the end of the first quarter. Our calculations also showed that FTDR isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 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 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.

BRIDGER MANAGEMENT

Roberto Mignone of Bridger Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 go over the key hedge fund action encompassing frontdoor, inc. (NASDAQ:FTDR).

What have hedge funds been doing with frontdoor, inc. (NASDAQ:FTDR)?

At second quarter’s end, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from the previous quarter. On the other hand, there were a total of 40 hedge funds with a bullish position in FTDR a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in frontdoor, inc. (NASDAQ:FTDR), which was worth $101.2 million at the end of the third quarter. On the second spot was Iridian Asset Management which amassed $87.5 million worth of shares. Rima Senvest Management, Maverick Capital, and Engle 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 Cowbird Capital allocated the biggest weight to frontdoor, inc. (NASDAQ:FTDR), around 16.31% of its 13F portfolio. StackLine Partners is also relatively very bullish on the stock, designating 14.01 percent of its 13F equity portfolio to FTDR.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into frontdoor, inc. (NASDAQ:FTDR) headfirst. Millennium Management, managed by Israel Englander, initiated the largest position in frontdoor, inc. (NASDAQ:FTDR). Millennium Management had $10.1 million invested in the company at the end of the quarter. Roberto Mignone’s Bridger Management also made a $10 million investment in the stock during the quarter. The following funds were also among the new FTDR investors: Peter Seuss’s Prana Capital Management, Michael Gelband’s ExodusPoint Capital, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s check out hedge fund activity in other stocks similar to frontdoor, inc. (NASDAQ:FTDR). These stocks are LendingTree, Inc (NASDAQ:TREE), Hexcel Corporation (NYSE:HXL), SL Green Realty Corp (NYSE:SLG), Cannae Holdings, Inc. (NYSE:CNNE), Cloudera, Inc. (NYSE:CLDR), Ballard Power Systems Inc. (NASDAQ:BLDP), and Novanta Inc. (NASDAQ:NOVT). This group of stocks’ market values are similar to FTDR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TREE 15 102759 -6
HXL 18 230973 -9
SLG 26 258760 3
CNNE 43 596426 23
CLDR 33 855546 7
BLDP 16 76980 6
NOVT 18 103718 8
Average 24.1 317880 4.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $318 million. That figure was $746 million in FTDR’s case. Cannae Holdings, Inc. (NYSE:CNNE) is the most popular stock in this table. On the other hand LendingTree, Inc (NASDAQ:TREE) is the least popular one with only 15 bullish hedge fund positions. frontdoor, inc. (NASDAQ:FTDR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FTDR is 86.4. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately FTDR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FTDR were disappointed as the stock returned -1.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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