At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Enstar Group Ltd. (NASDAQ:ESGR) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is Enstar Group Ltd. (NASDAQ:ESGR) a marvelous investment today? Hedge funds were taking a pessimistic view. The number of long hedge fund positions went down by 2 recently. Our calculations also showed that ESGR isn't among the 30 most popular stocks among hedge funds (click for Q1 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 the eyes of most traders, hedge funds are assumed to be slow, old investment tools of years past. While there are greater than 8000 funds with their doors open at present, Our researchers choose to focus on the crème de la crème of this club, about 850 funds. Most estimates calculate that this group of people manage most of all hedge funds' total capital, and by tracking their finest equity investments, Insider Monkey has unsheathed a few investment strategies that have historically outperformed the market. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
[caption id="attachment_338857" align="aligncenter" width="400"] Charles Davidson of Wexford Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to view the key hedge fund action surrounding Enstar Group Ltd. (NASDAQ:ESGR).
What does smart money think about Enstar Group Ltd. (NASDAQ:ESGR)?
At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ESGR over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Lei Zhang's Hillhouse Capital Management has the biggest position in Enstar Group Ltd. (NASDAQ:ESGR), worth close to $278 million, accounting for 3.7% of its total 13F portfolio. Sitting at the No. 2 spot is Diamond Hill Capital, managed by Ric Dillon, which holds a $40.7 million position; 0.3% of its 13F portfolio is allocated to the stock. Other peers with similar optimism encompass Renaissance Technologies, David Harding's Winton Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Hillhouse Capital Management allocated the biggest weight to Enstar Group Ltd. (NASDAQ:ESGR), around 3.75% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, dishing out 0.28 percent of its 13F equity portfolio to ESGR.
Since Enstar Group Ltd. (NASDAQ:ESGR) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of fund managers who were dropping their positions entirely last quarter. Interestingly, Brandon Haley's Holocene Advisors sold off the biggest stake of the "upper crust" of funds followed by Insider Monkey, totaling about $1.2 million in stock, and Mika Toikka's AlphaCrest Capital Management was right behind this move, as the fund said goodbye to about $0.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let's check out hedge fund activity in other stocks similar to Enstar Group Ltd. (NASDAQ:ESGR). We will take a look at Houlihan Lokey Inc (NYSE:HLI), Choice Hotels International, Inc. (NYSE:CHH), Tata Motors Limited (NYSE:TTM), and Aluminum Corp. of China Limited (NYSE:ACH). This group of stocks' market valuations resemble ESGR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HLI,15,133644,5 CHH,16,101950,0 TTM,10,60931,-1 ACH,2,2417,-1 Average,10.75,74736,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $340 million in ESGR's case. Choice Hotels International, Inc. (NYSE:CHH) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 2 bullish hedge fund positions. Enstar Group Ltd. (NASDAQ:ESGR) 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 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately ESGR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ESGR were disappointed as the stock returned -3.9% during the same time 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.