Is Ferrari N.V. (RACE) Going to Burn These Hedge Funds?

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Ferrari N.V. (NYSE:RACE).

Is Ferrari N.V. (NYSE:RACE) worth your attention right now? The best stock pickers are becoming less confident. The number of bullish hedge fund positions fell by 1 in recent months. Our calculations also showed that race isn’t among the 30 most popular stocks among hedge funds. RACE was in 26 hedge funds’ portfolios at the end of the third quarter of 2018. There were 27 hedge funds in our database with RACE positions at the end of the previous quarter.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gabriel Plotkin Melvin Capital Management

We’re going to take a look at the recent hedge fund action regarding Ferrari N.V. (NYSE:RACE).

How have hedgies been trading Ferrari N.V. (NYSE:RACE)?

At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RACE over the last 13 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with RACE Positions

More specifically, Darsana Capital Partners was the largest shareholder of Ferrari N.V. (NYSE:RACE), with a stake worth $332.9 million reported as of the end of September. Trailing Darsana Capital Partners was Melvin Capital Management, which amassed a stake valued at $245.9 million. Viking Global, Alatus Capital, and Marshall Wace LLP were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Ferrari N.V. (NYSE:RACE) has witnessed declining sentiment from hedge fund managers, logic holds that there is a sect of fund managers that decided to sell off their full holdings by the end of the third quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $125.8 million in stock, and Mohnish Pabrai’s Mohnish Pabrai was right behind this move, as the fund dumped about $54.2 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ferrari N.V. (NYSE:RACE) but similarly valued. We will take a look at Fiserv, Inc. (NASDAQ:FISV), Southern Copper Corporation (NYSE:SCCO), The Williams Companies, Inc. (NYSE:WMB), and eBay Inc (NASDAQ:EBAY). This group of stocks’ market values match RACE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FISV 31 594401 5
SCCO 17 326556 -1
WMB 43 1838341 3
EBAY 44 2276060 -1
Average 33.75 1258840 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $1.26 billion. That figure was $1.31 billion in RACE’s case. eBay Inc (NASDAQ:EBAY) is the most popular stock in this table. On the other hand Southern Copper Corporation (NYSE:SCCO) is the least popular one with only 17 bullish hedge fund positions. Ferrari N.V. (NYSE:RACE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard EBAY might be a better candidate to consider a long position.

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