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In this article we will check out the progression of hedge fund sentiment towards Envestnet Inc (NYSE:ENV) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is ENV stock a buy? Hedge funds were in a bullish mood. The number of bullish hedge fund bets inched up by 3 recently. Envestnet Inc (NYSE:ENV) was in 28 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ENV isn't among the 30 most popular stocks among hedge funds (click for Q4 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 124 percentage points since March 2017 (see the details here).
James Dinan of York Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let's check out the latest hedge fund action surrounding Envestnet Inc (NYSE:ENV).
Do Hedge Funds Think ENV Is A Good Stock To Buy Now?
At Q4's end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the third quarter of 2020. By comparison, 18 hedge funds held shares or bullish call options in ENV a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, York Capital Management held the most valuable stake in Envestnet Inc (NYSE:ENV), which was worth $20.1 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $16.9 million worth of shares. Azora Capital, Balyasny Asset Management, and Greenhouse Funds 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 York Capital Management allocated the biggest weight to Envestnet Inc (NYSE:ENV), around 1.97% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, earmarking 1.49 percent of its 13F equity portfolio to ENV.
Consequently, key money managers were leading the bulls' herd. Azora Capital, managed by Ravi Chopra, assembled the most valuable position in Envestnet Inc (NYSE:ENV). Azora Capital had $16.4 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors also made a $8.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Minhua Zhang's Weld Capital Management, Peter Muller's PDT Partners, and Renaissance Technologies.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Envestnet Inc (NYSE:ENV) but similarly valued. These stocks are Madison Square Garden Sports Corp. (NYSE:MSGS), Rush Street Interactive, Inc. (NYSE:RSI), Open Lending Corporation (NASDAQ:LPRO), Companhia Energetica Minas Gerais (NYSE:CIG), Sunnova Energy International Inc. (NYSE:NOVA), ASGN Incorporated (NYSE:ASGN), and Verint Systems Inc. (NASDAQ:VRNT). This group of stocks' market values are closest to ENV's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSGS,44,973161,-4 RSI,26,224704,26 LPRO,34,685554,11 CIG,12,59210,3 NOVA,32,684620,9 ASGN,14,83196,-7 VRNT,20,596005,-7 Average,26,472350,4.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $472 million. That figure was $123 million in ENV's case. Madison Square Garden Sports Corp. (NYSE:MSGS) is the most popular stock in this table. On the other hand Companhia Energetica Minas Gerais (NYSE:CIG) is the least popular one with only 12 bullish hedge fund positions. Envestnet Inc (NYSE:ENV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ENV is 63. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately ENV wasn't nearly as popular as these 30 stocks and hedge funds that were betting on ENV were disappointed as the stock returned -10.6% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.