Is Encore Capital Group, Inc. (NASDAQ:ECPG) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Encore Capital Group, Inc. (NASDAQ:ECPG) was in 8 hedge funds’ portfolios at the end of the second quarter of 2019. ECPG investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. There were 14 hedge funds in our database with ECPG positions at the end of the previous quarter. Our calculations also showed that ECPG isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the recent hedge fund action regarding Encore Capital Group, Inc. (NASDAQ:ECPG).
What does smart money think about Encore Capital Group, Inc. (NASDAQ:ECPG)?
Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -43% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in ECPG a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, BloombergSen held the most valuable stake in Encore Capital Group, Inc. (NASDAQ:ECPG), which was worth $25.4 million at the end of the second quarter. On the second spot was Second Curve Capital which amassed $15.5 million worth of shares. Moreover, Marshall Wace LLP, D E Shaw, and Millennium Management were also bullish on Encore Capital Group, Inc. (NASDAQ:ECPG), allocating a large percentage of their portfolios to this stock.
Seeing as Encore Capital Group, Inc. (NASDAQ:ECPG) has witnessed declining sentiment from hedge fund managers, we can see that there lies a certain “tier” of hedgies who sold off their entire stakes in the second quarter. At the top of the heap, Michael A. Price and Amos Meron’s Empyrean Capital Partners dropped the biggest investment of the “upper crust” of funds watched by Insider Monkey, totaling close to $7.6 million in stock. Emanuel J. Friedman’s fund, EJF Capital, also dumped its stock, about $7.4 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 6 funds in the second quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Encore Capital Group, Inc. (NASDAQ:ECPG) but similarly valued. These stocks are Par Pacific Holdings, Inc. (NYSE:PARR), Synaptics Incorporated (NASDAQ:SYNA), Methode Electronics Inc. (NYSE:MEI), and Livent Corporation (NYSE:LTHM). This group of stocks’ market valuations are similar to ECPG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PARR | 14 | 121798 | -2 |
| SYNA | 13 | 179495 | -8 |
| MEI | 8 | 87043 | -2 |
| LTHM | 21 | 167433 | -4 |
| Average | 14 | 138942 | -4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $64 million in ECPG’s case. Livent Corporation (NYSE:LTHM) is the most popular stock in this table. On the other hand Methode Electronics Inc. (NYSE:MEI) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Encore Capital Group, Inc. (NASDAQ:ECPG) is even less popular than MEI. Hedge funds dodged a bullet by taking a bearish stance towards ECPG. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ECPG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ECPG investors were disappointed as the stock returned -1.6% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
