Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Everi Holdings Inc (NYSE:EVRI).
Everi Holdings Inc (NYSE:EVRI) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 26 hedge funds’ portfolios at the end of the first quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as INTL Fcstone Inc (NASDAQ:INTL), Verso Corporation (NYSE:VRS), and Laredo Petroleum Inc (NYSE:LPI) to gather more data points.
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 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 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 our short portfolio.
Let’s go over the recent hedge fund action surrounding Everi Holdings Inc (NYSE:EVRI).
What does the smart money think about Everi Holdings Inc (NYSE:EVRI)?
Heading into the second quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2018. By comparison, 28 hedge funds held shares or bullish call options in EVRI a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Everi Holdings Inc (NYSE:EVRI) was held by Indaba Capital Management, which reported holding $73.7 million worth of stock at the end of March. It was followed by Private Capital Management with a $37.6 million position. Other investors bullish on the company included Renaissance Technologies, Becker Drapkin Management, and Engine Capital.
Due to the fact that Everi Holdings Inc (NYSE:EVRI) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedgies that decided to sell off their positions entirely by the end of the third quarter. Intriguingly, Didric Cederholm’s Lion Point dumped the largest investment of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $8.1 million in stock, and Ken Grossman and Glen Schneider’s SG Capital Management was right behind this move, as the fund dropped about $7.2 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Everi Holdings Inc (NYSE:EVRI) but similarly valued. We will take a look at INTL Fcstone Inc (NASDAQ:INTL), Verso Corporation (NYSE:VRS), Laredo Petroleum Inc (NYSE:LPI), and Winmark Corporation (NASDAQ:WINA). This group of stocks’ market values are similar to EVRI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| INTL | 15 | 78246 | 2 |
| VRS | 24 | 142939 | 2 |
| LPI | 18 | 187141 | 4 |
| WINA | 7 | 101640 | -1 |
| Average | 16 | 127492 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $127 million. That figure was $245 million in EVRI’s case. Verso Corporation (NYSE:VRS) is the most popular stock in this table. On the other hand Winmark Corporation (NASDAQ:WINA) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Everi Holdings Inc (NYSE:EVRI) is more popular among hedge funds. 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 EVRI as the stock returned 7.9% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
