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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 Envestnet Inc (NYSE:ENV) and determine whether hedge funds skillfully traded this stock.
Envestnet Inc (NYSE:ENV) shareholders have witnessed an increase in activity from the world's largest hedge funds lately. Envestnet Inc (NYSE:ENV) was in 19 hedge funds' portfolios at the end of June. The all time high for this statistics is 18. 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 Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In today’s marketplace there are many tools market participants have at their disposal to size up their holdings. A couple of the most underrated tools are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the best money managers can outperform the market by a very impressive margin (see the details here).
James Dinan of York Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. Keeping this in mind we're going to take a gander at the recent hedge fund action surrounding Envestnet Inc (NYSE:ENV).
Hedge fund activity in Envestnet Inc (NYSE:ENV)
At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ENV over the last 20 quarters. With hedgies' capital changing hands, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, Greenhouse Funds was the largest shareholder of Envestnet Inc (NYSE:ENV), with a stake worth $30.6 million reported as of the end of September. Trailing Greenhouse Funds was York Capital Management, which amassed a stake valued at $16.4 million. Whetstone Capital Advisors, Marshall Wace LLP, and Balyasny Asset 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 Greenhouse Funds allocated the biggest weight to Envestnet Inc (NYSE:ENV), around 4.58% of its 13F portfolio. Whetstone Capital Advisors is also relatively very bullish on the stock, designating 2.39 percent of its 13F equity portfolio to ENV.
As one would reasonably expect, specific money managers were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the most outsized position in Envestnet Inc (NYSE:ENV). Marshall Wace LLP had $7.9 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also initiated a $3.2 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Hoon Kim's Quantinno Capital, and Jinghua Yan's TwinBeech Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Envestnet Inc (NYSE:ENV) but similarly valued. These stocks are China Biologic Products Holdings Inc (NASDAQ:CBPO), Hanesbrands Inc. (NYSE:HBI), Natera Inc (NASDAQ:NTRA), Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), Janus Henderson Group plc (NYSE:JHG), Equity Commonwealth (NYSE:EQC), and ICL Group Ltd. (NYSE:ICL). This group of stocks' market valuations match ENV's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBPO,23,774587,7 HBI,31,543895,-5 NTRA,35,634417,3 MNTA,42,733308,6 JHG,30,215555,7 EQC,23,215349,3 ICL,5,6303,2 Average,27,446202,3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $446 million. That figure was $85 million in ENV's case. Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) is the most popular stock in this table. On the other hand ICL Group Ltd. (NYSE:ICL) is the least popular one with only 5 bullish hedge fund positions. Envestnet Inc (NYSE:ENV) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ENV is 55.9. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately ENV wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ENV investors were disappointed as the stock returned 4.9% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.