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Is Endeavour Silver Corp. (EXK) Going to Burn These Hedge Funds?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETFs by nearly 10 percentage points during the first 11 months of 2019. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Endeavour Silver Corp. (NYSE:EXK) from the perspective of those elite funds.

Is Endeavour Silver Corp. (NYSE:EXK) a buy, sell, or hold? The smart money is reducing their bets on the stock. The number of bullish hedge fund positions were trimmed by 1 lately. Our calculations also showed that EXK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). EXK was in 5 hedge funds’ portfolios at the end of September. There were 6 hedge funds in our database with EXK positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s view the new hedge fund action surrounding Endeavour Silver Corp. (NYSE:EXK).

How are hedge funds trading Endeavour Silver Corp. (NYSE:EXK)?

Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EXK over the last 17 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Endeavour Silver Corp. (NYSE:EXK), which was worth $13.6 million at the end of the third quarter. On the second spot was Millennium Management which amassed $2.3 million worth of shares. Ancora Advisors, Citadel Investment Group, and Sprott Asset Management 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 Ancora Advisors allocated the biggest weight to Endeavour Silver Corp. (NYSE:EXK), around 0.03% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to EXK.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Two Sigma Advisors. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified EXK as a viable investment and initiated a position in the stock.

Let’s now review hedge fund activity in other stocks similar to Endeavour Silver Corp. (NYSE:EXK). These stocks are Nordic American Tankers Limited (NYSE:NAT), Graf Industrial Corp. (NYSE:GRAF), Tribune Publishing Company (NASDAQ:TPCO), and Great Ajax Corp (NYSE:AJX). All of these stocks’ market caps resemble EXK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NAT 9 6253 0
GRAF 12 53730 0
TPCO 15 14906 2
AJX 8 18528 0
Average 11 23354 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $17 million in EXK’s case. Tribune Publishing Company (NASDAQ:TPCO) is the most popular stock in this table. On the other hand Great Ajax Corp (NYSE:AJX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Endeavour Silver Corp. (NYSE:EXK) is even less popular than AJX. Hedge funds dodged a bullet by taking a bearish stance towards EXK. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EXK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EXK investors were disappointed as the stock returned -2.7% during the fourth quarter (through the end of November) 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 so far in Q4.

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

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