Here is What Hedge Funds Think About Eros STX Global Corporation (ESGC)

We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of Eros STX Global Corporation (NYSE:ESGC) based on that data.

Is Eros STX Global Corporation (NYSE:ESGC) undervalued? The best stock pickers were taking a bearish view. The number of bullish hedge fund positions dropped by 5 in recent months. Eros STX Global Corporation (NYSE:ESGC) was in 5 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 19. Our calculations also showed that ESGC isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

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 S&P 500 ETFs by more than 66 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. 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.


Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now let’s take a gander at the latest hedge fund action surrounding Eros STX Global Corporation (NYSE:ESGC).

How have hedgies been trading Eros STX Global Corporation (NYSE:ESGC)?

At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ESGC over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Paradice Investment Management was the largest shareholder of Eros STX Global Corporation (NYSE:ESGC), with a stake worth $12.7 million reported as of the end of September. Trailing Paradice Investment Management was Portolan Capital Management, which amassed a stake valued at $8 million. Omni Partners, AQR Capital Management, and Citadel 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 Paradice Investment Management allocated the biggest weight to Eros STX Global Corporation (NYSE:ESGC), around 0.92% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, dishing out 0.9 percent of its 13F equity portfolio to ESGC.

Because Eros STX Global Corporation (NYSE:ESGC) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there exists a select few money managers who sold off their positions entirely heading into Q4. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest investment of the 750 funds tracked by Insider Monkey, totaling an estimated $4 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dumped about $2.6 million worth. These transactions are interesting, as total hedge fund interest was cut by 5 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Eros STX Global Corporation (NYSE:ESGC). These stocks are Bonanza Creek Energy Inc (NYSE:BCEI), Granite Point Mortgage Trust Inc. (NYSE:GPMT), Kimball International Inc (NASDAQ:KBAL), Golden Entertainment Inc (NASDAQ:GDEN), Arrow Financial Corporation (NASDAQ:AROW), BioSpecifics Technologies Corp. (NASDAQ:BSTC), and Xenon Pharmaceuticals Inc (NASDAQ:XENE). This group of stocks’ market values match ESGC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BCEI 16 63464 1
GPMT 13 20830 3
KBAL 19 68221 3
GDEN 12 67167 -3
AROW 3 10861 0
BSTC 9 48738 1
XENE 26 195443 -1
Average 14 67818 0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $22 million in ESGC’s case. Xenon Pharmaceuticals Inc (NASDAQ:XENE) is the most popular stock in this table. On the other hand Arrow Financial Corporation (NASDAQ:AROW) is the least popular one with only 3 bullish hedge fund positions. Eros STX Global Corporation (NYSE:ESGC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ESGC is 12.2. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and surpassed the market again by 16.1 percentage points. Unfortunately ESGC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ESGC investors were disappointed as the stock returned 1.4% since the end of September (through 11/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.