The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 18.7% through May 30th, vs. a gain of 12.1% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards ChannelAdvisor Corp (NYSE:ECOM), and what that likely means for the prospects of the company and its stock.
ChannelAdvisor Corp (NYSE:ECOM) investors should pay attention to an increase in hedge fund interest in recent months. ECOM was in 14 hedge funds' portfolios at the end of the first quarter of 2019. There were 11 hedge funds in our database with ECOM holdings at the end of the previous quarter. Our calculations also showed that ECOM isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a peek at the latest hedge fund action surrounding ChannelAdvisor Corp (NYSE:ECOM).
What does smart money think about ChannelAdvisor Corp (NYSE:ECOM)?
At Q1's end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 27% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in ECOM a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Altai Capital was the largest shareholder of ChannelAdvisor Corp (NYSE:ECOM), with a stake worth $27 million reported as of the end of March. Trailing Altai Capital was Archon Capital Management, which amassed a stake valued at $12.2 million. D E Shaw, Cannell Capital, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. Millennium Management, managed by Israel Englander, assembled the biggest position in ChannelAdvisor Corp (NYSE:ECOM). Millennium Management had $1.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $1 million investment in the stock during the quarter. The following funds were also among the new ECOM investors: Matthew Hulsizer's PEAK6 Capital Management and Bruce Kovner's Caxton Associates LP.
Let's now take a look at hedge fund activity in other stocks similar to ChannelAdvisor Corp (NYSE:ECOM). These stocks are Exantas Capital Corp. (NYSE:XAN), Kezar Life Sciences, Inc. (NASDAQ:KZR), Macatawa Bank Corporation (NASDAQ:MCBC), and West Bancorporation, Inc. (NASDAQ:WTBA). All of these stocks' market caps match ECOM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XAN,17,61923,3 KZR,8,52697,4 MCBC,5,22822,-1 WTBA,2,7728,-1 Average,8,36293,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $62 million in ECOM's case. Exantas Capital Corp. (NYSE:XAN) is the most popular stock in this table. On the other hand West Bancorporation, Inc. (NASDAQ:WTBA) is the least popular one with only 2 bullish hedge fund positions. ChannelAdvisor Corp (NYSE:ECOM) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately ECOM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ECOM were disappointed as the stock returned -23.2% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.