Did Hedge Funds Make The Right Call On Enova International Inc (ENVA) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Enova International Inc (NYSE:ENVA) and determine whether hedge funds skillfully traded this stock.

Enova International Inc (NYSE:ENVA) investors should pay attention to a decrease in hedge fund interest in recent months. ENVA was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with ENVA holdings at the end of the previous quarter. Our calculations also showed that ENVA 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.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Joe Huber - Huber Capital Management

Joe Huber of Huber Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to view the recent hedge fund action regarding Enova International Inc (NYSE:ENVA).

What have hedge funds been doing with Enova International Inc (NYSE:ENVA)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ENVA over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in Enova International Inc (NYSE:ENVA) was held by Renaissance Technologies, which reported holding $34.8 million worth of stock at the end of September. It was followed by 683 Capital Partners with a $15.9 million position. Other investors bullish on the company included Prescott Group Capital Management, Millennium Management, and Huber Capital Management. In terms of the portfolio weights assigned to each position Prescott Group Capital Management allocated the biggest weight to Enova International Inc (NYSE:ENVA), around 4.44% of its 13F portfolio. Voce Capital is also relatively very bullish on the stock, dishing out 2.11 percent of its 13F equity portfolio to ENVA.

Due to the fact that Enova International Inc (NYSE:ENVA) has faced falling interest from the smart money, it’s easy to see that there were a few fund managers who were dropping their full holdings last quarter. Intriguingly, Michael A. Price and Amos Meron’s Empyrean Capital Partners sold off the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $1.2 million in stock. Mark Coe’s fund, Intrinsic Edge Capital, also dumped its stock, about $1.2 million worth. These moves are interesting, as total hedge fund interest was cut by 4 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Enova International Inc (NYSE:ENVA). These stocks are Pacific Biosciences of California, Inc. (NASDAQ:PACB), Mesoblast Limited (NASDAQ:MESO), Boingo Wireless Inc (NASDAQ:WIFI), and Dorian LPG Ltd (NYSE:LPG). All of these stocks’ market caps are similar to ENVA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PACB 18 75493 -5
MESO 4 1302 3
WIFI 16 149530 4
LPG 17 107158 -5
Average 13.75 83371 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $82 million in ENVA’s case. Pacific Biosciences of California, Inc. (NASDAQ:PACB) is the most popular stock in this table. On the other hand Mesoblast Limited (NASDAQ:MESO) is the least popular one with only 4 bullish hedge fund positions. Enova International Inc (NYSE:ENVA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately ENVA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ENVA were disappointed as the stock returned -5.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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