U.S. Markets closed

Is Eagle Bulk Shipping Inc. (EGLE) Going to Burn These Hedge Funds?

Reymerlyn Martin

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 one and a half month time period since the end of the third quarter is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 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 Eagle Bulk Shipping Inc. (NASDAQ:EGLE).

Is Eagle Bulk Shipping Inc. (NASDAQ:EGLE) a buy, sell, or hold? Prominent investors are in an optimistic mood. The number of bullish hedge fund positions improved by 4 in recent months. Our calculations also showed that EGLE isn't among the 30 most popular stocks among hedge funds. EGLE was in 17 hedge funds' portfolios at the end of the third quarter of 2018. There were 13 hedge funds in our database with EGLE holdings at the end of the previous quarter.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.

Steven Tananbaum - GoldenTree Asset Management

We're going to review the fresh hedge fund action surrounding Eagle Bulk Shipping Inc. (NASDAQ:EGLE).

How are hedge funds trading Eagle Bulk Shipping Inc. (NASDAQ:EGLE)?

Heading into the fourth quarter of 2018, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EGLE over the last 13 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

EGLE_dec2018

More specifically, GoldenTree Asset Management was the largest shareholder of Eagle Bulk Shipping Inc. (NASDAQ:EGLE), with a stake worth $62.1 million reported as of the end of September. Trailing GoldenTree Asset Management was Renaissance Technologies, which amassed a stake valued at $6.5 million. Mangrove Partners, Royce & Associates, and Oaktree Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most outsized position in Eagle Bulk Shipping Inc. (NASDAQ:EGLE). Arrowstreet Capital had $1.7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $0.9 million position during the quarter. The other funds with brand new EGLE positions are Thomas Bailard's Bailard Inc and Mike Vranos's Ellington.

Let's go over hedge fund activity in other stocks similar to Eagle Bulk Shipping Inc. (NASDAQ:EGLE). These stocks are GenMark Diagnostics, Inc (NASDAQ:GNMK), Plug Power, Inc. (NASDAQ:PLUG), PolarityTE, Inc. (NASDAQ:PTE), and Goldman Sachs MLP Income Opportunities Fund (NYSE:GMZ). This group of stocks' market valuations are similar to EGLE's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GNMK,11,66908,0 PLUG,7,15813,1 PTE,14,104461,1 GMZ,1,263,1 Average,8.25,46861,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $94 million in EGLE's case. 0 is the most popular stock in this table. On the other hand 0 is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Eagle Bulk Shipping Inc. (NASDAQ:EGLE) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

Related Content