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Hedge Funds Dropping Entercom Communications Corp. (ETM)

In this article we will check out the progression of hedge fund sentiment towards Entercom Communications Corp. (NYSE:ETM) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Entercom Communications Corp. (NYSE:ETM) investors should be aware of a decrease in support from the world’s most elite money managers of late. ETM was in 17 hedge funds’ portfolios at the end of March. There were 23 hedge funds in our database with ETM positions at the end of the previous quarter. Our calculations also showed that ETM 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.

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 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 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 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the latest hedge fund action regarding Entercom Communications Corp. (NYSE:ETM).

What have hedge funds been doing with Entercom Communications Corp. (NYSE:ETM)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from the fourth quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in ETM a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

More specifically, Tensile Capital was the largest shareholder of Entercom Communications Corp. (NYSE:ETM), with a stake worth $3.5 million reported as of the end of September. Trailing Tensile Capital was Solas Capital Management, which amassed a stake valued at $2.9 million. Lonestar Capital Management, Citadel Investment Group, and Minerva Advisors 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 Solas Capital Management allocated the biggest weight to Entercom Communications Corp. (NYSE:ETM), around 3.15% of its 13F portfolio. Lonestar Capital Management is also relatively very bullish on the stock, dishing out 1.29 percent of its 13F equity portfolio to ETM.

Seeing as Entercom Communications Corp. (NYSE:ETM) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of money managers that slashed their entire stakes heading into Q4. It’s worth mentioning that John Petry’s Sessa Capital sold off the largest stake of the 750 funds monitored by Insider Monkey, totaling close to $13.5 million in stock, and Steven Tananbaum’s GoldenTree Asset Management was right behind this move, as the fund dropped about $2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 6 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Entercom Communications Corp. (NYSE:ETM). These stocks are Tellurian Inc. (NASDAQ:TELL), SC Health Corporation (NYSE:SCPE), Jumia Technologies AG (NYSE:JMIA), and Atlantic Power Corp (NYSE:AT). This group of stocks’ market valuations are similar to ETM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TELL 6 1521 -5
SCPE 16 57393 -1
JMIA 6 7689 0
AT 10 22041 -2
Average 9.5 22161 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $13 million in ETM’s case. SC Health Corporation (NYSE:SCPE) is the most popular stock in this table. On the other hand Tellurian Inc. (NASDAQ:TELL) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Entercom Communications Corp. (NYSE:ETM) is more popular among hedge funds. 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 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. Unfortunately ETM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ETM were disappointed as the stock returned -1.8% during the second quarter (through June 22nd) 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 most of these stocks already outperformed the market in 2020.

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