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Were Hedge Funds Right About Flocking Into frontdoor, inc. (FTDR) ?

Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. NASDAQ and Russell 2000 indices were already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points in the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards frontdoor, inc. (NASDAQ:FTDR).

frontdoor, inc. (NASDAQ:FTDR) shareholders have witnessed an increase in hedge fund interest lately. FTDR was in 24 hedge funds’ portfolios at the end of December. There were 2 hedge funds in our database with FTDR positions at the end of the previous quarter. Our calculations also showed that FTDR 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’ 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CHILTON INVESTMENT COMPANY

We’re going to take a peek at the latest hedge fund action regarding frontdoor, inc. (NASDAQ:FTDR).

How have hedgies been trading frontdoor, inc. (NASDAQ:FTDR)?

At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 1100% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in FTDR a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

FTDR_apr2019

Among these funds, Iridian Asset Management held the most valuable stake in frontdoor, inc. (NASDAQ:FTDR), which was worth $65.7 million at the end of the third quarter. On the second spot was Chilton Investment Company which amassed $22.2 million worth of shares. Moreover, Armistice Capital, Hawk Ridge Management, and Carlson Capital were also bullish on frontdoor, inc. (NASDAQ:FTDR), allocating a large percentage of their portfolios to this stock.

With a general bullishness amongst the heavyweights, specific money managers have jumped into frontdoor, inc. (NASDAQ:FTDR) headfirst. Iridian Asset Management, managed by David Cohen and Harold Levy, initiated the largest position in frontdoor, inc. (NASDAQ:FTDR). Iridian Asset Management had $65.7 million invested in the company at the end of the quarter. Richard Chilton’s Chilton Investment Company also made a $22.2 million investment in the stock during the quarter. The other funds with brand new FTDR positions are Steven Boyd’s Armistice Capital, David Brown’s Hawk Ridge Management, and Clint Carlson’s Carlson Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as frontdoor, inc. (NASDAQ:FTDR) but similarly valued. These stocks are InterDigital, Inc. (NASDAQ:IDCC), Conduent Incorporated (NYSE:CNDT), Sunoco LP (NYSE:SUN), and Liberty Expedia Holdings, Inc. (NASDAQ:LEXEA). This group of stocks’ market caps are closest to FTDR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IDCC 21 138794 3
CNDT 35 487994 1
SUN 7 11185 0
LEXEA 26 354597 2
Average 22.25 248143 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $190 million in FTDR’s case. Conduent Incorporated (NYSE:CNDT) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 7 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 calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on FTDR as the stock returned 26% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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