Hedge Funds Are Dumping Ellington Financial LLC (EFC)

How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Ellington Financial LLC (NYSE:EFC).

Ellington Financial LLC (NYSE:EFC) shareholders have witnessed a decrease in support from the world’s most elite money managers lately. Ellington Financial LLC (NYSE:EFC) was in 6 hedge funds’ portfolios at the end of the third quarter of 2015. There were 7 hedge funds in our database with Ellington Financial LLC (NYSE:EFC) positions at the end of the previous quarter. At the end of this article, we will also compare Ellington Financial LLC (NYSE:EFC) to other stocks, including Capella Education Company (NASDAQ:CPLA), Aegion Corp – Class A (NASDAQ:AEGN), and PGT, Inc. (NASDAQ:PGTI) to get a better sense of its popularity.

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According to most stock holders, hedge funds are seen as unimportant, outdated investment vehicles of the past. While there are over 8000 funds trading at the moment, our researchers choose to focus on the leaders of this group, around 700 funds. These hedge fund managers watch over most of the smart money’s total asset base, and by shadowing their matchless picks, Insider Monkey has formulated a few investment strategies that have historically defeated the broader indices. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points per year for a decade in their back tests.

With all of this in mind, let’s take a look at the new action surrounding Ellington Financial LLC (NYSE:EFC).

Hedge fund activity in Ellington Financial LLC (NYSE:EFC)

At the end of Q3, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 14% from the second quarter. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ellington, managed by Mike Vranos, holds the largest position in Ellington Financial LLC (NYSE:EFC). Ellington has a $36.4 million position in the stock, comprising 9.7% of its 13F portfolio. On Ellington’s heels is Omega Advisors, managed by Leon Cooperman, which holds an $18.3 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish include Emanuel J. Friedman’s EJF Capital, Carl Goldsmith and Scott Klein’s Beach Point Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Seeing as Ellington Financial LLC (NYSE:EFC) has experienced a declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds who sold off their positions entirely by the end of the third quarter. It’s worth mentioning that Renaissance Technologies dropped the largest position of the 700 funds tracked by Insider Monkey, comprising about $2.1 million in stock, and William Michaelcheck’s Mariner Investment Group was right behind this move, as the fund dropped about $2 million worth of shares. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 fund by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Ellington Financial LLC (NYSE:EFC) but similarly valued. We will take a look at Capella Education Company (NASDAQ:CPLA), Aegion Corp – Class A (NASDAQ:AEGN), PGT, Inc. (NASDAQ:PGTI), and Synergy Pharmaceuticals Inc (NASDAQ:SGYP). This group of stocks’ market values is closest to Ellington Financial LLC (NYSE:EFC)’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CPLA 13 123788 -2
AEGN 15 38415 2
PGTI 11 82952 -7
SGYP 31 134639 0

As you can see, these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $57 million in Ellington Financial LLC (NYSE:EFC)’s case. Synergy Pharmaceuticals Inc (NASDAQ:SGYP) is the most popular stock in this table. On the other hand, PGT, Inc. (NASDAQ:PGTI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks, Ellington Financial LLC (NYSE:EFC) is even less popular than PGT, Inc. (NASDAQ:PGTI). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.