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Should You Avoid Formula One Group (FWONK)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ recent losses in Facebook. Let’s take a closer look at what the funds we track think about Formula One Group (NASDAQ:FWONK) in this article.

Formula One Group (NASDAQ:FWONK) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. FWONK was in 35 hedge funds’ portfolios at the end of December. There were 39 hedge funds in our database with FWONK holdings at the end of the previous quarter. Our calculations also showed that FWONK isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

01 Mason Hawkins, Southeastern Asset Management

We’re going to review the recent hedge fund action surrounding Formula One Group (NASDAQ:FWONK).

How have hedgies been trading Formula One Group (NASDAQ:FWONK)?

At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. By comparison, 39 hedge funds held shares or bullish call options in FWONK 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.

FWONK_apr2019

More specifically, Viking Global was the largest shareholder of Formula One Group (NASDAQ:FWONK), with a stake worth $334.2 million reported as of the end of September. Trailing Viking Global was Eminence Capital, which amassed a stake valued at $288.3 million. SPO Advisory Corp, Ashe Capital, and Southeastern Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Formula One Group (NASDAQ:FWONK) has faced bearish sentiment from the smart money, it’s safe to say that there exists a select few hedge funds that slashed their entire stakes by the end of the third quarter. At the top of the heap, David Fear’s Thunderbird Partners said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, worth an estimated $93.1 million in stock. Sharlyn C. Heslam’s fund, Stockbridge Partners, also cut its stock, about $83.4 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 4 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Formula One Group (NASDAQ:FWONK) but similarly valued. These stocks are L Brands Inc (NYSE:LB), Omega Healthcare Investors Inc (NYSE:OHI), Okta, Inc. (NASDAQ:OKTA), and Ubiquiti Networks Inc (NASDAQ:UBNT). This group of stocks’ market valuations resemble FWONK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LB 35 641047 8
OHI 11 158341 -1
OKTA 40 672928 8
UBNT 19 387799 3
Average 26.25 465029 4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $465 million. That figure was $1655 million in FWONK’s case. Okta, Inc. (NASDAQ:OKTA) is the most popular stock in this table. On the other hand Omega Healthcare Investors Inc (NYSE:OHI) is the least popular one with only 11 bullish hedge fund positions. Formula One Group (NASDAQ:FWONK) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that the top 15 most popular stocks among hedge funds returned 21.3% year-to-date through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on FWONK, though not to the same extent, as the stock returned 19.3% and outperformed the market as well.

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

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