Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Enterprise Financial Services Corp (NASDAQ:EFSC) was in 15 hedge funds' portfolios at the end of December. EFSC shareholders have witnessed an increase in hedge fund interest recently. There were 13 hedge funds in our database with EFSC holdings at the end of the previous quarter. Our calculations also showed that efsc 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a look at the key hedge fund action encompassing Enterprise Financial Services Corp (NASDAQ:EFSC).
How are hedge funds trading Enterprise Financial Services Corp (NASDAQ:EFSC)?
At Q4's end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in EFSC over the last 14 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Enterprise Financial Services Corp (NASDAQ:EFSC) was held by Renaissance Technologies, which reported holding $18.8 million worth of stock at the end of December. It was followed by Elizabeth Park Capital Management with a $9.8 million position. Other investors bullish on the company included Marshall Wace LLP, AQR Capital Management, and AlphaOne Capital Partners.
As aggregate interest increased, specific money managers were leading the bulls' herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most outsized position in Enterprise Financial Services Corp (NASDAQ:EFSC). Marshall Wace LLP had $5.4 million invested in the company at the end of the quarter. David Costen Haley's HBK Investments also initiated a $0.5 million position during the quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Enterprise Financial Services Corp (NASDAQ:EFSC) but similarly valued. These stocks are Social Capital Hedosophia Holdings Corp. (NYSE:IPOA), PJT Partners Inc (NYSE:PJT), Natera Inc (NASDAQ:NTRA), and Qiwi PLC (NASDAQ:QIWI). All of these stocks' market caps are similar to EFSC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IPOA,21,288648,-2 PJT,18,141813,1 NTRA,17,99976,-4 QIWI,8,96327,0 Average,16,156691,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $53 million in EFSC's case. Social Capital Hedosophia Holdings Corp. (NYSE:IPOA) is the most popular stock in this table. On the other hand Qiwi PLC (NASDAQ:QIWI) is the least popular one with only 8 bullish hedge fund positions. Enterprise Financial Services Corp (NASDAQ:EFSC) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately EFSC wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); EFSC investors were disappointed as the stock returned 13.2% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.