Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Encore Capital Group, Inc. (NASDAQ:ECPG) to find out whether there were any major changes in hedge funds’ views.
Is ECPG a good stock to buy now? Money managers were becoming more confident. The number of long hedge fund positions went up by 3 in recent months. Encore Capital Group, Inc. (NASDAQ:ECPG) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ECPG isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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 stocks that are in our short portfolio.
With all of this in mind we’re going to take a look at the new hedge fund action encompassing Encore Capital Group, Inc. (NASDAQ:ECPG).
Do Hedge Funds Think ECPG Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ECPG over the last 21 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, BloombergSen was the largest shareholder of Encore Capital Group, Inc. (NASDAQ:ECPG), with a stake worth $49.7 million reported as of the end of September. Trailing BloombergSen was Portolan Capital Management, which amassed a stake valued at $10 million. D E Shaw, Renaissance Technologies, and Intrinsic Edge 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 Second Curve Capital allocated the biggest weight to Encore Capital Group, Inc. (NASDAQ:ECPG), around 9.02% of its 13F portfolio. BloombergSen is also relatively very bullish on the stock, dishing out 3.6 percent of its 13F equity portfolio to ECPG.
Consequently, specific money managers were leading the bulls’ herd. Wexford Capital, managed by Charles Davidson and Joseph Jacobs, created the most valuable position in Encore Capital Group, Inc. (NASDAQ:ECPG). Wexford Capital had $2 million invested in the company at the end of the quarter. Peter Algert’s Algert Global also made a $1.3 million investment in the stock during the quarter. The other funds with brand new ECPG positions are Paul Tudor Jones’s Tudor Investment Corp, Jay Petschek and Steven Major’s Corsair Capital Management, and J. Daniel Plants’s Voce Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Encore Capital Group, Inc. (NASDAQ:ECPG). We will take a look at BrightView Holdings, Inc. (NYSE:BV), Argo Group International Holdings, Ltd. (NYSE:ARGO), Viper Energy Partners LP (NASDAQ:VNOM), TowneBank (NASDAQ:TOWN), INMODE LTD. (NASDAQ:INMD), Inter Parfums, Inc. (NASDAQ:IPAR), and Cinemark Holdings, Inc. (NYSE:CNK). This group of stocks’ market caps match ECPG’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $102 million. That figure was $102 million in ECPG’s case. Cinemark Holdings, Inc. (NYSE:CNK) is the most popular stock in this table. On the other hand Viper Energy Partners LP (NASDAQ:VNOM) is the least popular one with only 11 bullish hedge fund positions. Encore Capital Group, Inc. (NASDAQ:ECPG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ECPG is 70.1. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and beat the market again by 15.8 percentage points. Unfortunately ECPG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ECPG were disappointed as the stock returned -1.5% since the end of September (through 12/14) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.