Is Callaway Golf Company (ELY) Going to Burn These Hedge Funds?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Callaway Golf Company (NYSE:ELY)? The smart money sentiment can provide an answer to this question.

Callaway Golf Company (NYSE:ELY) shareholders have witnessed a decrease in hedge fund interest recently. Callaway Golf Company (NYSE:ELY) was in 39 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 40. There were 40 hedge funds in our database with ELY holdings at the end of March. Our calculations also showed that ELY isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Ken Fisher of Fisher Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s view the new hedge fund action encompassing Callaway Golf Company (NYSE:ELY).

Do Hedge Funds Think ELY Is A Good Stock To Buy Now?

At Q2’s end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ELY over the last 24 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fisher Asset Management held the most valuable stake in Callaway Golf Company (NYSE:ELY), which was worth $110.1 million at the end of the second quarter. On the second spot was Scopus Asset Management which amassed $57.3 million worth of shares. Woodson Capital Management, Two Sigma Advisors, and Nitorum Capital 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 Marlowe Partners allocated the biggest weight to Callaway Golf Company (NYSE:ELY), around 21.11% of its 13F portfolio. Potrero Capital Research is also relatively very bullish on the stock, designating 5.11 percent of its 13F equity portfolio to ELY.

Because Callaway Golf Company (NYSE:ELY) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there were a few hedge funds that decided to sell off their positions entirely in the second quarter. Interestingly, Malcolm Levine’s Dendur Capital dumped the largest position of all the hedgies watched by Insider Monkey, valued at an estimated $33.3 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also cut its stock, about $7.3 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Callaway Golf Company (NYSE:ELY) but similarly valued. These stocks are Lumentum Holdings Inc (NASDAQ:LITE), Huaneng Power International Inc (NYSE:HNP), EQT Corporation (NYSE:EQT), Colfax Corporation (NYSE:CFX), Ziff Davis, Inc. (NASDAQ:JCOM), Sarepta Therapeutics Inc (NASDAQ:SRPT), and Louisiana-Pacific Corporation (NYSE:LPX). This group of stocks’ market values resemble ELY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LITE 29 334727 -2
HNP 4 4331 0
EQT 43 468450 8
CFX 31 1074229 -18
JCOM 22 414616 0
SRPT 34 539734 1
LPX 39 852143 9
Average 28.9 526890 -0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $527 million. That figure was $559 million in ELY’s case. EQT Corporation (NYSE:EQT) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 4 bullish hedge fund positions. Callaway Golf Company (NYSE:ELY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ELY is 78.1. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and beat the market again by 4.4 percentage points. Unfortunately ELY wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ELY were disappointed as the stock returned -21.1% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Follow Topgolf Callaway Brands Corp. (NYSE:MODG)

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