Were Hedge Funds Right About Piling Into Roku, Inc. (ROKU)?

At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not Roku, Inc. (NASDAQ:ROKU) makes for a good investment right now.

Is Roku, Inc. (NASDAQ:ROKU) worth your attention right now? Prominent investors were getting more optimistic. The number of bullish hedge fund bets rose by 3 in recent months. Roku, Inc. (NASDAQ:ROKU) was in 63 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 60. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ROKU isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 60 hedge funds in our database with ROKU positions at the end of the fourth quarter.

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 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Cathie Wood ARK Investment Management

Cathie Wood of ARK Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s review the latest hedge fund action surrounding Roku, Inc. (NASDAQ:ROKU).

Do Hedge Funds Think ROKU Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 63 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ROKU over the last 23 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, ARK Investment Management, managed by Catherine D. Wood, holds the most valuable position in Roku, Inc. (NASDAQ:ROKU). ARK Investment Management has a $1.6281 billion position in the stock, comprising 3.2% of its 13F portfolio. The second most bullish fund manager is Ken Griffin of Citadel Investment Group, with a $640 million call position; the fund has 0.2% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish include Renaissance Technologies, D. E. Shaw’s D E Shaw and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Ogborne Capital allocated the biggest weight to Roku, Inc. (NASDAQ:ROKU), around 22.72% of its 13F portfolio. Kuvari Partners is also relatively very bullish on the stock, dishing out 16.78 percent of its 13F equity portfolio to ROKU.

As aggregate interest increased, key money managers were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the most outsized position in Roku, Inc. (NASDAQ:ROKU). Two Sigma Advisors had $259.2 million invested in the company at the end of the quarter. Vikram Kumar’s Kuvari Partners also made a $17.5 million investment in the stock during the quarter. The following funds were also among the new ROKU investors: Benjamin A. Smith’s Laurion Capital Management, Suraj Parkash Chopra’s Force Hill Capital Management, and Phill Gross and Robert Atchinson’s Adage Capital Management.

Let’s go over hedge fund activity in other stocks similar to Roku, Inc. (NASDAQ:ROKU). We will take a look at IDEXX Laboratories, Inc. (NASDAQ:IDXX), Microchip Technology Incorporated (NASDAQ:MCHP), Manulife Financial Corporation (NYSE:MFC), eBay Inc (NASDAQ:EBAY), L3Harris Technologies, Inc. (NYSE:LHX), The Bank of New York Mellon Corporation (NYSE:BK), and Cognizant Technology Solutions Corp (NASDAQ:CTSH). This group of stocks’ market caps match ROKU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IDXX 49 2851712 3
MCHP 42 962773 -3
MFC 17 190066 -3
EBAY 51 3762465 -2
LHX 41 1398723 4
BK 49 4769692 2
CTSH 33 3339212 -13
Average 40.3 2467806 -1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.3 hedge funds with bullish positions and the average amount invested in these stocks was $2468 million. That figure was $3781 million in ROKU’s case. eBay Inc (NASDAQ:EBAY) is the most popular stock in this table. On the other hand Manulife Financial Corporation (NYSE:MFC) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Roku, Inc. (NASDAQ:ROKU) is more popular among hedge funds. Our overall hedge fund sentiment score for ROKU is 88. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 25.8% in 2021 through August 6th but still managed to beat the market by 6.7 percentage points. Hedge funds were also right about betting on ROKU as the stock returned 20.2% since the end of March (through 8/6) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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