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Here is What Hedge Funds Think About Etsy Inc (ETSY)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Etsy Inc (NASDAQ:ETSY) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Etsy Inc (NASDAQ:ETSY) has experienced an increase in enthusiasm from smart money in recent months. Etsy Inc (NASDAQ:ETSY) was in 43 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 49. There were 38 hedge funds in our database with ETSY holdings at the end of March. Our calculations also showed that ETSY 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we’re going to take a peek at the fresh hedge fund action surrounding Etsy Inc (NASDAQ:ETSY).

How are hedge funds trading Etsy Inc (NASDAQ:ETSY)?

At Q2’s end, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ETSY over the last 20 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Etsy Inc (NASDAQ:ETSY), with a stake worth $473.9 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $224.3 million. D E Shaw, Cadian Capital, 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 Half Sky Capital allocated the biggest weight to Etsy Inc (NASDAQ:ETSY), around 18.03% of its 13F portfolio. Goodnow Investment Group is also relatively very bullish on the stock, earmarking 13.41 percent of its 13F equity portfolio to ETSY.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Light Street Capital, managed by Glen Kacher, initiated the most valuable position in Etsy Inc (NASDAQ:ETSY). Light Street Capital had $77.1 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also initiated a $20.7 million position during the quarter. The other funds with new positions in the stock are Leonard Green’s Leonard Green & Partners, Seth Wunder’s Black-and-White Capital, and Harry Gail’s Harspring Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Etsy Inc (NASDAQ:ETSY) but similarly valued. We will take a look at Genuine Parts Company (NYSE:GPC), Sarepta Therapeutics Inc (NASDAQ:SRPT), Hewlett Packard Enterprise Company (NYSE:HPE), Grifols SA (NASDAQ:GRFS), Nucor Corporation (NYSE:NUE), FactSet Research Systems Inc. (NYSE:FDS), and Seagate Technology plc (NASDAQ:STX). This group of stocks’ market caps resemble ETSY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GPC 20 144284 -2
SRPT 39 1148135 6
HPE 31 693633 2
GRFS 21 583023 -2
NUE 26 115702 0
FDS 21 200608 0
STX 27 2100119 -5
Average 26.4 712215 -0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $712 million. That figure was $1727 million in ETSY’s case. Sarepta Therapeutics Inc (NASDAQ:SRPT) is the most popular stock in this table. On the other hand Genuine Parts Company (NYSE:GPC) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Etsy Inc (NASDAQ:ETSY) is more popular among hedge funds. Our overall hedge fund sentiment score for ETSY is 86.3. 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. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately ETSY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ETSY were disappointed as the stock returned 12.7% since the end of the second quarter 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.