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Is Eros International plc (EROS) Going to Burn These Hedge Funds?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Eros International plc (NYSE:EROS).

Eros International plc (NYSE:EROS) has seen a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that EROS isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.

TUDOR INVESTMENT CORP

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a glance at the recent hedge fund action encompassing Eros International plc (NYSE:EROS).

What have hedge funds been doing with Eros International plc (NYSE:EROS)?

At Q1’s end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EROS over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Is EROS A Good Stock To Buy?

More specifically, Paradice Investment Management was the largest shareholder of Eros International plc (NYSE:EROS), with a stake worth $9.7 million reported as of the end of September. Trailing Paradice Investment Management was Shah Capital Management, which amassed a stake valued at $5 million. Arrowstreet Capital, Omni Partners, and D E Shaw 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 Shah Capital Management allocated the biggest weight to Eros International plc (NYSE:EROS), around 3.98% of its 13F portfolio. Paradice Investment Management is also relatively very bullish on the stock, dishing out 1.08 percent of its 13F equity portfolio to EROS.

Due to the fact that Eros International plc (NYSE:EROS) has faced falling interest from hedge fund managers, it’s easy to see that there was a specific group of hedge funds who were dropping their positions entirely by the end of the first quarter. Intriguingly, Donald Sussman’s Paloma Partners sold off the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling close to $0.5 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also cut its stock, about $0.4 million worth. These moves are important to note, as total hedge fund interest fell by 3 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Eros International plc (NYSE:EROS). These stocks are Callon Petroleum Company (NYSE:CPE), Alphatec Holdings Inc (NASDAQ:ATEC), Consolidated-Tomoka Land Co. (NYSE:CTO), and Wins Finance Holdings Inc. (NASDAQ:WINS). This group of stocks’ market values are closest to EROS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CPE 17 12018 -10
ATEC 15 22025 1
CTO 10 22599 -2
WINS 1 196 0
Average 10.75 14210 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $18 million in EROS’s case. Callon Petroleum Company (NYSE:CPE) is the most popular stock in this table. On the other hand Wins Finance Holdings Inc. (NASDAQ:WINS) is the least popular one with only 1 bullish hedge fund positions. Eros International plc (NYSE:EROS) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on EROS as the stock returned 89.7% during the second quarter and outperformed the market by an even larger margin.

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