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Enterprise Financial Services Corp (EFSC): Are Hedge Funds Right About This Stock?

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Enterprise Financial Services Corp (NASDAQ:EFSC).

Is Enterprise Financial Services Corp (NASDAQ:EFSC) the right investment to pursue these days? Investors who are in the know are getting less optimistic. The number of long hedge fund bets were trimmed by 1 in recent months. Our calculations also showed that EFSC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the key hedge fund action regarding Enterprise Financial Services Corp (NASDAQ:EFSC).

What have hedge funds been doing with Enterprise Financial Services Corp (NASDAQ:EFSC)?

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in EFSC a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the largest position in Enterprise Financial Services Corp (NASDAQ:EFSC). Renaissance Technologies has a $21.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Elizabeth Park Capital Management, led by Fred Cummings, holding a $11.9 million position; the fund has 4.7% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish consist of Israel Englander’s Millennium Management, Brian Ashford-Russell and Tim Woolley’s Polar Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Elizabeth Park Capital Management allocated the biggest weight to Enterprise Financial Services Corp (NASDAQ:EFSC), around 4.67% of its 13F portfolio. Polar Capital is also relatively very bullish on the stock, earmarking 0.05 percent of its 13F equity portfolio to EFSC.

Seeing as Enterprise Financial Services Corp (NASDAQ:EFSC) has faced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few fund managers that decided to sell off their full holdings in the third quarter. At the top of the heap, Paul Hondros’s AlphaOne Capital Partners dropped the biggest position of all the hedgies followed by Insider Monkey, worth an estimated $0.8 million in stock. Minhua Zhang’s fund, Weld Capital Management, also cut its stock, about $0.2 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Enterprise Financial Services Corp (NASDAQ:EFSC) but similarly valued. These stocks are Talos Energy, Inc. (NYSE:TALO), John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), Varex Imaging Corporation (NASDAQ:VREX), and Wesco Aircraft Holdings Inc (NYSE:WAIR). This group of stocks’ market caps are closest to EFSC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TALO 15 64673 1
JBSS 15 55397 5
VREX 20 92701 0
WAIR 23 226099 2
Average 18.25 109718 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $57 million in EFSC’s case. Wesco Aircraft Holdings Inc (NYSE:WAIR) is the most popular stock in this table. On the other hand Talos Energy, Inc. (NYSE:TALO) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Enterprise Financial Services Corp (NASDAQ:EFSC) is even less popular than TALO. Hedge funds clearly dropped the ball on EFSC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on EFSC as the stock returned 10.9% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

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

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