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

Is Roku, Inc. (NASDAQ:ROKU) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Roku, Inc. (NASDAQ:ROKU) investors should be aware of a decrease in support from the world’s most elite money managers of late. Roku, Inc. (NASDAQ:ROKU) was in 61 hedge funds’ portfolios at the end of June. The all time high for this statistic is 63. There were 63 hedge funds in our database with ROKU positions at the end of the first quarter. Our calculations also showed that ROKU isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

At the moment there are many tools investors employ to analyze their holdings. Some of the most useful tools are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the top investment managers can outpace the S&P 500 by a solid margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

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, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium 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. Now we’re going to take a peek at the key hedge fund action surrounding Roku, Inc. (NASDAQ:ROKU).

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

At Q2’s end, a total of 61 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the first quarter of 2020. On the other hand, there were a total of 41 hedge funds with a bullish position in ROKU a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, ARK Investment Management was the largest shareholder of Roku, Inc. (NASDAQ:ROKU), with a stake worth $2177.6 million reported as of the end of June. Trailing ARK Investment Management was Citadel Investment Group, which amassed a stake valued at $883.5 million. Whale Rock Capital Management, D E Shaw, and Two Sigma Advisors 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 Ogborne Capital allocated the biggest weight to Roku, Inc. (NASDAQ:ROKU), around 17.86% of its 13F portfolio. Greenhaven Road Investment Management is also relatively very bullish on the stock, earmarking 8.47 percent of its 13F equity portfolio to ROKU.

Since Roku, Inc. (NASDAQ:ROKU) has faced a decline in interest from hedge fund managers, it’s safe to say that there exists a select few hedgies who were dropping their positions entirely by the end of the second quarter. Intriguingly, Vikram Kumar’s Kuvari Partners dropped the largest position of the “upper crust” of funds monitored by Insider Monkey, worth about $17.5 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also said goodbye to its stock, about $17.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Roku, Inc. (NASDAQ:ROKU) but similarly valued. These stocks are Boston Scientific Corporation (NYSE:BSX), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Dominion Energy Inc. (NYSE:D), Ford Motor Company (NYSE:F), ICICI Bank Limited (NYSE:IBN), Waste Management, Inc. (NYSE:WM), and Eaton Corporation plc (NYSE:ETN). This group of stocks’ market caps are closest to ROKU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BSX 51 3029136 7
REGN 48 1595301 9
D 34 1262051 -5
F 55 2106196 6
IBN 28 2473600 -3
WM 39 3600334 7
ETN 40 1062179 -9
Average 42.1 2161257 1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.1 hedge funds with bullish positions and the average amount invested in these stocks was $2161 million. That figure was $5632 million in ROKU’s case. Ford Motor Company (NYSE:F) is the most popular stock in this table. On the other hand ICICI Bank Limited (NYSE:IBN) is the least popular one with only 28 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 82. 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 gained 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Unfortunately ROKU wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ROKU were disappointed as the stock returned -33.6% since the end of the second quarter (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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