Hedge Funds Are Warming Up To Callaway Golf Company (ELY)

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 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Callaway Golf Company (NYSE:ELY) and determine whether the smart money was really smart about this stock.

Callaway Golf Company (NYSE:ELY) shareholders have witnessed an increase in enthusiasm from smart money of late. Callaway Golf Company (NYSE:ELY) was in 24 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 29. There were 23 hedge funds in our database with ELY holdings at the end of March. Our calculations also showed that ELY isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Barry Rosenstein JANA PARTNERS

Barry Rosenstein of JANA Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a peek at the recent hedge fund action encompassing Callaway Golf Company (NYSE:ELY).

How are hedge funds trading Callaway Golf Company (NYSE:ELY)?

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ELY over the last 20 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, JANA Partners was the largest shareholder of Callaway Golf Company (NYSE:ELY), with a stake worth $99.1 million reported as of the end of September. Trailing JANA Partners was Cadian Capital, which amassed a stake valued at $52 million. Fisher Asset Management, Scopus Asset Management, and 13D Management 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 JANA Partners allocated the biggest weight to Callaway Golf Company (NYSE:ELY), around 9.3% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, designating 4.99 percent of its 13F equity portfolio to ELY.

As aggregate interest increased, specific money managers have been driving this bullishness. Cadian Capital, managed by Eric Bannasch, initiated the largest position in Callaway Golf Company (NYSE:ELY). Cadian Capital had $52 million invested in the company at the end of the quarter. Ken Fisher’s Fisher Asset Management also made a $41 million investment in the stock during the quarter. The following funds were also among the new ELY investors: Alexander Mitchell’s Scopus Asset Management, Rob Citrone’s Discovery Capital Management, and George McCabe’s Portolan Capital Management.

Let’s check out hedge fund activity in other stocks similar to Callaway Golf Company (NYSE:ELY). These stocks are Big Lots, Inc. (NYSE:BIG), Zymeworks Inc. (NYSE:ZYME), CareTrust REIT Inc (NASDAQ:CTRE), Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), Viper Energy Partners LP (NASDAQ:VNOM), Plains GP Holdings LP (NYSE:PAGP), and Ameris Bancorp (NASDAQ:ABCB). All of these stocks’ market caps are closest to ELY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BIG 22 247501 7
ZYME 31 601363 4
CTRE 19 57146 12
IRWD 32 369498 4
VNOM 10 40175 -1
PAGP 19 109862 -3
ABCB 17 82148 4
Average 21.4 215385 3.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $215 million. That figure was $277 million in ELY’s case. Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) is the most popular stock in this table. On the other hand Viper Energy Partners LP (NASDAQ:VNOM) is the least popular one with only 10 bullish hedge fund positions. Callaway Golf Company (NYSE:ELY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ELY is 62.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately ELY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ELY were disappointed as the stock returned 4.5% 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.