Were Expert Investors Right About Etsy Inc (ETSY)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Etsy Inc (NASDAQ:ETSY) and determine whether hedge funds skillfully traded this stock.

Etsy Inc (NASDAQ:ETSY) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 47 hedge funds’ portfolios at the end of the third quarter of 2021. Our calculations also showed that ETSY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). At the end of this article we will also compare ETSY to other stocks including V.F. Corporation (NYSE:VFC), Deutsche Bank Aktiengesellschaft (NYSE:DB), and Peloton Interactive, Inc. (NASDAQ:PTON) to get a better sense of its popularity.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s take a glance at the fresh hedge fund action surrounding Etsy Inc (NASDAQ:ETSY).

Do Hedge Funds Think ETSY Is A Good Stock To Buy Now?

At the end of September, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 51 hedge funds with a bullish position in ETSY a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Citadel Investment Group held the most valuable stake in Etsy Inc (NASDAQ:ETSY), which was worth $285.9 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $225.1 million worth of shares. Citadel Investment Group, Goodnow Investment Group, and ARK Investment 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 Goodnow Investment Group allocated the biggest weight to Etsy Inc (NASDAQ:ETSY), around 13.19% of its 13F portfolio. Emerson Point Capital is also relatively very bullish on the stock, designating 7.32 percent of its 13F equity portfolio to ETSY.

Because Etsy Inc (NASDAQ:ETSY) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedge funds who sold off their full holdings last quarter. It’s worth mentioning that Li Ran’s Half Sky Capital dropped the largest investment of all the hedgies followed by Insider Monkey, comprising about $43.7 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $35.9 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Etsy Inc (NASDAQ:ETSY) but similarly valued. These stocks are V.F. Corporation (NYSE:VFC), Deutsche Bank Aktiengesellschaft (NYSE:DB), Peloton Interactive, Inc. (NASDAQ:PTON), Best Buy Co., Inc. (NYSE:BBY), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Energy Transfer L.P. (NYSE:ET), and ONEOK, Inc. (NYSE:OKE). This group of stocks’ market values resemble ETSY’s market value.

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As you can see these stocks had an average of 29.6 hedge funds with bullish positions and the average amount invested in these stocks was $1389 million. That figure was $1436 million in ETSY’s case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand Deutsche Bank Aktiengesellschaft (NYSE:DB) is the least popular one with only 15 bullish hedge fund positions. Etsy Inc (NASDAQ:ETSY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ETSY is 64.2. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, ETSY wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ETSY were disappointed as the stock returned -24.5% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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