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Hedge Funds Are Crazy About Encore Capital Group, Inc. (ECPG)

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Is Encore Capital Group, Inc. (NASDAQ:ECPG) a sound stock to buy now? The smart money is becoming hopeful. The number of long hedge fund bets rose by 5 recently.

According to most investors, hedge funds are assumed to be slow, outdated investment vehicles of yesteryear. While there are more than 8000 funds trading at present, we at Insider Monkey look at the aristocrats of this group, around 450 funds. It is widely believed that this group has its hands on the lion’s share of all hedge funds’ total capital, and by keeping an eye on their best investments, we have unearthed a number of investment strategies that have historically outstripped Mr. Market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 23.3 percentage points in 8 months (see the details here).

David Shaw

Just as integral, optimistic insider trading sentiment is another way to break down the world of equities. As the old adage goes: there are a variety of motivations for an executive to cut shares of his or her company, but just one, very simple reason why they would buy. Various empirical studies have demonstrated the valuable potential of this strategy if “monkeys” understand where to look (learn more here).

With all of this in mind, let’s take a look at the recent action regarding Encore Capital Group, Inc. (NASDAQ:ECPG).

What does the smart money think about Encore Capital Group, Inc. (NASDAQ:ECPG)?

At the end of the first quarter, a total of 11 of the hedge funds we track held long positions in this stock, a change of 83% from the first quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially.

According to our comprehensive database, John Murphy’s Alydar Capital had the biggest position in Encore Capital Group, Inc. (NASDAQ:ECPG), worth close to $31.1 million, comprising 2% of its total 13F portfolio. The second largest stake is held by D. E. Shaw of D E Shaw, with a $9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other hedge funds with similar optimism include Andy Redleaf’s Whitebox Advisors, Cliff Asness’s AQR Capital Management and Israel Englander’s Millennium Management.

As one would reasonably expect, key money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the most outsized position in Encore Capital Group, Inc. (NASDAQ:ECPG). Millennium Management had 1.8 million invested in the company at the end of the quarter. Mike Vranos’s Ellington also initiated a $0.6 million position during the quarter. The following funds were also among the new ECPG investors: Matthew Tewksbury’s Stevens Capital Management, Peter Rathjens Bruce Clarke and John Campbell’s Arrowstreet Capital, and Paul Tudor Jones’s Tudor Investment Corp.

How are insiders trading Encore Capital Group, Inc. (NASDAQ:ECPG)?

Insider trading activity, especially when it’s bullish, is at its handiest when the company we’re looking at has experienced transactions within the past half-year. Over the last six-month time frame, Encore Capital Group, Inc. (NASDAQ:ECPG) has seen 1 unique insiders purchasing, and 2 insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to Encore Capital Group, Inc. (NASDAQ:ECPG). These stocks are Triangle Capital Corporation (NYSE:TCAP), Duff & Phelps Corp (NYSE:DUF), Blackrock Kelso Capital Corp. (NASDAQ:BKCC), Epoch Holding Corp (NASDAQ:EPHC), and Pacific Coast Oil Trust (NYSE:ROYT). This group of stocks are the members of the asset management industry and their market caps are similar to ECPG’s market cap.

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