Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
ChannelAdvisor Corp (NYSE:ECOM) shareholders have witnessed a decrease in hedge fund sentiment recently. ECOM was in 13 hedge funds’ portfolios at the end of September. There were 14 hedge funds in our database with ECOM positions at the end of the previous quarter. Our calculations also showed that ECOM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the key hedge fund action encompassing ChannelAdvisor Corp (NYSE:ECOM).
Hedge fund activity in ChannelAdvisor Corp (NYSE:ECOM)
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ECOM over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Rishi Bajaj, Toby Symonds, and Steve Tesoriere’s Altai Capital has the most valuable position in ChannelAdvisor Corp (NYSE:ECOM), worth close to $32.3 million, comprising 28% of its total 13F portfolio. The second largest stake is held by David E. Shaw of D E Shaw, with a $5.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that hold long positions include Renaissance Technologies, Cliff Asness’s AQR Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Altai Capital allocated the biggest weight to ChannelAdvisor Corp (NYSE:ECOM), around 27.96% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to ECOM.
Seeing as ChannelAdvisor Corp (NYSE:ECOM) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there was a specific group of funds who were dropping their positions entirely heading into Q4. It’s worth mentioning that Constantinos J. Christofilis’s Archon Capital Management dumped the largest position of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $7.5 million in call options, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dumped about $0.1 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 1 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as ChannelAdvisor Corp (NYSE:ECOM) but similarly valued. We will take a look at National Bankshares Inc. (NASDAQ:NKSH), Catasys, Inc. (NASDAQ:CATS), Collectors Universe, Inc. (NASDAQ:CLCT), and Viemed Healthcare, Inc. (NASDAQ:VMD). This group of stocks’ market values are closest to ECOM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NKSH | 2 | 21129 | -1 |
| CATS | 7 | 2325 | 1 |
| CLCT | 9 | 34458 | 2 |
| VMD | 4 | 11765 | 4 |
| Average | 5.5 | 17419 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $47 million in ECOM’s case. Collectors Universe, Inc. (NASDAQ:CLCT) is the most popular stock in this table. On the other hand National Bankshares Inc. (NASDAQ:NKSH) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks ChannelAdvisor Corp (NYSE:ECOM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ECOM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ECOM were disappointed as the stock returned 1.7% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
