We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded EnerSys (NYSE:ENS) based on those filings.
EnerSys (NYSE:ENS) investors should pay attention to a decrease in activity from the world's largest hedge funds of late. ENS was in 13 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 19 hedge funds in our database with ENS holdings at the end of the previous quarter. Our calculations also showed that ENS isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
[caption id="attachment_193003" align="aligncenter" width="400"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's review the recent hedge fund action encompassing EnerSys (NYSE:ENS).
Hedge fund activity in EnerSys (NYSE:ENS)
At Q4's end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -32% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in ENS over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, ACK Asset Management was the largest shareholder of EnerSys (NYSE:ENS), with a stake worth $24.8 million reported as of the end of September. Trailing ACK Asset Management was Royce & Associates, which amassed a stake valued at $14.7 million. One Fin Capital Management, Skylands Capital, and AQR 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 One Fin Capital Management allocated the biggest weight to EnerSys (NYSE:ENS), around 7.5% of its 13F portfolio. ACK Asset Management is also relatively very bullish on the stock, dishing out 7.19 percent of its 13F equity portfolio to ENS.
Because EnerSys (NYSE:ENS) has experienced 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 were dropping their entire stakes in the third quarter. Interestingly, Renaissance Technologies dropped the largest stake of the "upper crust" of funds monitored by Insider Monkey, valued at close to $5.4 million in stock. Noam Gottesman's fund, GLG Partners, also dropped its stock, about $3.7 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 6 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as EnerSys (NYSE:ENS) but similarly valued. We will take a look at Gol Linhas Aereas Inteligentes SA (NYSE:GOL), American National Insurance Company (NASDAQ:ANAT), QTS Realty Trust Inc (NYSE:QTS), and Kodiak Sciences Inc (NASDAQ:KOD). All of these stocks' market caps match ENS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GOL,12,218734,1 ANAT,16,62011,-1 QTS,23,326983,-4 KOD,11,1147037,4 Average,15.5,438691,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $439 million. That figure was $71 million in ENS's case. QTS Realty Trust Inc (NYSE:QTS) is the most popular stock in this table. On the other hand Kodiak Sciences Inc (NASDAQ:KOD) is the least popular one with only 11 bullish hedge fund positions. EnerSys (NYSE:ENS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately ENS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ENS investors were disappointed as the stock returned -34.7% during the same time period 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 most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.