The market has been volatile in the last 6 months as the Federal Reserve continued its rate hikes and then abruptly reversed its stance and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q4 and the beginning of Q1. In this article, we analyze what the smart money thinks of e.l.f. Beauty, Inc. (NYSE:ELF) and find out how it is affected by hedge funds’ moves.
e.l.f. Beauty, Inc. (NYSE:ELF) has seen an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that ELF isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a gander at the new hedge fund action surrounding e.l.f. Beauty, Inc. (NYSE:ELF).
How have hedgies been trading e.l.f. Beauty, Inc. (NYSE:ELF)?
At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ELF over the last 15 quarters. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Marathon Partners was the largest shareholder of e.l.f. Beauty, Inc. (NYSE:ELF), with a stake worth $46.9 million reported as of the end of March. Trailing Marathon Partners was Bares Capital Management, which amassed a stake valued at $23.1 million. Portolan Capital Management, Balyasny Asset Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, specific money managers have jumped into e.l.f. Beauty, Inc. (NYSE:ELF) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the most valuable position in e.l.f. Beauty, Inc. (NYSE:ELF). Balyasny Asset Management had $6.1 million invested in the company at the end of the quarter. Peter Algert and Kevin Coldiron’s Algert Coldiron Investors also initiated a $0.7 million position during the quarter. The other funds with brand new ELF positions are Jim Simons’s Renaissance Technologies, Mike Vranos’s Ellington, and Michael Price’s MFP Investors.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as e.l.f. Beauty, Inc. (NYSE:ELF) but similarly valued. These stocks are EZCORP Inc (NASDAQ:EZPW), Transenterix Inc (NYSE:TRXC), pdvWireless Inc (NASDAQ:PDVW), and McEwen Mining Inc (NYSE:MUX). This group of stocks’ market valuations match ELF’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EZPW | 20 | 116774 | 0 |
| TRXC | 13 | 10958 | 5 |
| PDVW | 13 | 252859 | 1 |
| MUX | 5 | 4852 | 0 |
| Average | 12.75 | 96361 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $118 million in ELF’s case. EZCORP Inc (NASDAQ:EZPW) is the most popular stock in this table. On the other hand McEwen Mining Inc (NYSE:MUX) is the least popular one with only 5 bullish hedge fund positions. e.l.f. Beauty, Inc. (NYSE:ELF) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on ELF, though not to the same extent, as the stock returned 0.9% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
