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Hedge Funds Dipping Their Toes Back Into Essent Group Ltd (ESNT)

The latest 13F reporting period has come and gone, and 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. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Essent Group Ltd (NYSE:ESNT) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Essent Group Ltd (NYSE:ESNT) has seen an increase in activity from the world’s largest hedge funds in recent months. Essent Group Ltd (NYSE:ESNT) was in 29 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. Our calculations also showed that ESNT 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

TUDOR INVESTMENT CORP

Paul Tudor Jones of Tudor Investment Corp

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we’re going to take a peek at the key hedge fund action encompassing Essent Group Ltd (NYSE:ESNT).

Hedge fund activity in Essent Group Ltd (NYSE:ESNT)

At the end of June, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in ESNT a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Rima Senvest Management held the most valuable stake in Essent Group Ltd (NYSE:ESNT), which was worth $89.5 million at the end of the third quarter. On the second spot was Polar Capital which amassed $79.8 million worth of shares. GLG Partners, Renaissance Technologies, and Alyeska Investment Group 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 Rima Senvest Management allocated the biggest weight to Essent Group Ltd (NYSE:ESNT), around 5.59% of its 13F portfolio. Beach Point Capital Management is also relatively very bullish on the stock, setting aside 2.42 percent of its 13F equity portfolio to ESNT.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Hudson Bay Capital Management, managed by Sander Gerber, established the most outsized position in Essent Group Ltd (NYSE:ESNT). Hudson Bay Capital Management had $6.3 million invested in the company at the end of the quarter. Ravi Chopra’s Azora Capital also initiated a $2.9 million position during the quarter. The following funds were also among the new ESNT investors: Matthew L Pinz’s Pinz Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Essent Group Ltd (NYSE:ESNT) but similarly valued. We will take a look at ONE Gas Inc (NYSE:OGS), Nevro Corp (NYSE:NVRO), Cameco Corporation (NYSE:CCJ), Cabot Microelectronics Corporation (NASDAQ:CCMP), Qualys Inc (NASDAQ:QLYS), MSC Industrial Direct Co Inc (NYSE:MSM), and Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC). This group of stocks’ market valuations are closest to ESNT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OGS 20 32804 4
NVRO 35 757082 4
CCJ 22 321965 -2
CCMP 23 163401 7
QLYS 27 168061 10
MSM 30 389200 7
PAC 7 103052 2
Average 23.4 276509 4.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.4 hedge funds with bullish positions and the average amount invested in these stocks was $277 million. That figure was $261 million in ESNT’s case. Nevro Corp (NYSE:NVRO) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC) is the least popular one with only 7 bullish hedge fund positions. Essent Group Ltd (NYSE:ESNT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ESNT is 71.5. 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately ESNT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ESNT were disappointed as the stock returned 6% 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.