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Did Hedge Funds Drop The Ball On Endurance International Group Holdings Inc (EIGI)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Endurance International Group Holdings Inc (NASDAQ:EIGI) and determine whether the smart money was really smart about this stock.

Is Endurance International Group Holdings Inc (NASDAQ:EIGI) a bargain? The smart money was in a bearish mood. The number of bullish hedge fund bets were cut by 1 in recent months. Our calculations also showed that EIGI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 largest silicon producing countries to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the recent hedge fund action regarding Endurance International Group Holdings Inc (NASDAQ:EIGI).

What does smart money think about Endurance International Group Holdings Inc (NASDAQ:EIGI)?

At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EIGI over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Okumus Fund Management held the most valuable stake in Endurance International Group Holdings Inc (NASDAQ:EIGI), which was worth $18.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $7 million worth of shares. D E Shaw, Millennium Management, and Arrowstreet Capital 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 Okumus Fund Management allocated the biggest weight to Endurance International Group Holdings Inc (NASDAQ:EIGI), around 44.8% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to EIGI.

Seeing as Endurance International Group Holdings Inc (NASDAQ:EIGI) has experienced declining sentiment from hedge fund managers, logic holds that there exists a select few funds that slashed their full holdings heading into Q4. Intriguingly, Eric Singer’s VIEX Capital Advisors dropped the largest investment of the 750 funds followed by Insider Monkey, worth about $11.7 million in stock. Cliff Asness’s fund, AQR Capital Management, also sold off its stock, about $0.1 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Endurance International Group Holdings Inc (NASDAQ:EIGI) but similarly valued. We will take a look at Verrica Pharmaceuticals Inc. (NASDAQ:VRCA), Astronics Corporation (NASDAQ:ATRO), Peabody Energy Corporation (NYSE:BTU), and Cambridge Bancorp (NASDAQ:CATC). This group of stocks’ market valuations resemble EIGI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VRCA 3 53609 -1
ATRO 15 63536 -1
BTU 25 129012 -4
CATC 9 15932 2
Average 13 65522 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $33 million in EIGI’s case. Peabody Energy Corporation (NYSE:BTU) is the most popular stock in this table. On the other hand Verrica Pharmaceuticals Inc. (NASDAQ:VRCA) is the least popular one with only 3 bullish hedge fund positions. Endurance International Group Holdings Inc (NASDAQ:EIGI) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on EIGI as the stock returned 97.7% during the second quarter and outperformed the market by an even larger margin.

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