Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Entercom Communications Corp. (NYSE:ETM).
Is Entercom Communications Corp. (NYSE:ETM) a great investment right now? The smart money is getting less bullish. The number of bullish hedge fund bets went down by 1 in recent months. Our calculations also showed that ETM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ETM was in 18 hedge funds' portfolios at the end of the third quarter of 2019. There were 19 hedge funds in our database with ETM positions at the end of the previous quarter. Video: Click the image to 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 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 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.
[caption id="attachment_338854" align="aligncenter" width="500"] Steven Tananbaum of GoldenTree Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the new hedge fund action encompassing Entercom Communications Corp. (NYSE:ETM).
Hedge fund activity in Entercom Communications Corp. (NYSE:ETM)
At Q3's end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in ETM over the last 17 quarters. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Among these funds, Sessa Capital held the most valuable stake in Entercom Communications Corp. (NYSE:ETM), which was worth $13.9 million at the end of the third quarter. On the second spot was GoldenTree Asset Management which amassed $7.6 million worth of shares. Tensile Capital, Citadel Investment Group, and Solas Capital 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 Solas Capital Management allocated the biggest weight to Entercom Communications Corp. (NYSE:ETM), around 3.28% of its 13F portfolio. Sessa Capital is also relatively very bullish on the stock, dishing out 1.59 percent of its 13F equity portfolio to ETM.
Due to the fact that Entercom Communications Corp. (NYSE:ETM) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain "tier" of fund managers who were dropping their positions entirely in the third quarter. Intriguingly, Brandon Osten's Venator Capital Management dropped the largest stake of all the hedgies monitored by Insider Monkey, valued at about $2.9 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund said goodbye to about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 1 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Entercom Communications Corp. (NYSE:ETM) but similarly valued. We will take a look at Merchants Bancorp (NASDAQ:MBIN), Chico's FAS, Inc. (NYSE:CHS), FRP Holdings Inc (NASDAQ:FRPH), and Diamond Hill Investment Group, Inc. (NASDAQ:DHIL). All of these stocks' market caps resemble ETM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MBIN,8,8102,2 CHS,14,57946,1 FRPH,8,39496,1 DHIL,15,46453,1 Average,11.25,37999,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $46 million in ETM's case. Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) is the most popular stock in this table. On the other hand Merchants Bancorp (NASDAQ:MBIN) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Entercom Communications Corp. (NYSE:ETM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on ETM as the stock returned 42.2% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.