Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Enerplus Corporation (NYSE:ERF) changed recently.
Enerplus Corporation (NYSE:ERF) has seen a decrease in support from the world's most elite money managers in recent months. Our calculations also showed that ERF isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's check out the new hedge fund action regarding Enerplus Corporation (NYSE:ERF).
How have hedgies been trading Enerplus Corporation (NYSE:ERF)?
At Q2's end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -43% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ERF over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Encompass Capital Advisors was the largest shareholder of Enerplus Corporation (NYSE:ERF), with a stake worth $47.7 million reported as of the end of March. Trailing Encompass Capital Advisors was Cardinal Capital, which amassed a stake valued at $22.2 million. SIR Capital Management, Point72 Asset Management, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Enerplus Corporation (NYSE:ERF) has witnessed falling interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of hedgies that elected to cut their full holdings in the second quarter. Interestingly, Paul Marshall and Ian Wace's Marshall Wace LLP cut the biggest stake of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $8.5 million in stock. David Costen Haley's fund, HBK Investments, also sold off its stock, about $0.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 9 funds in the second quarter.
Let's check out hedge fund activity in other stocks similar to Enerplus Corporation (NYSE:ERF). We will take a look at Usa Compression Partners LP (NYSE:USAC), Forward Air Corporation (NASDAQ:FWRD), Dine Brands Global, Inc. (NYSE:DIN), and Horace Mann Educators Corporation (NYSE:HMN). This group of stocks' market caps are closest to ERF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position USAC,3,1019,-2 FWRD,18,102012,3 DIN,15,159846,-5 HMN,12,30864,-2 Average,12,73435,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $130 million in ERF's case. Forward Air Corporation (NASDAQ:FWRD) is the most popular stock in this table. On the other hand Usa Compression Partners LP (NYSE:USAC) is the least popular one with only 3 bullish hedge fund positions. Enerplus Corporation (NYSE:ERF) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ERF wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ERF investors were disappointed as the stock returned -0.8% during 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.