The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Eagle Bulk Shipping Inc. (NASDAQ:EGLE) from the perspective of those elite funds.
Eagle Bulk Shipping Inc. (NASDAQ:EGLE) investors should pay attention to a decrease in activity from the world's largest hedge funds in recent months. EGLE was in 9 hedge funds' portfolios at the end of the second quarter of 2019. There were 10 hedge funds in our database with EGLE positions at the end of the previous quarter. Our calculations also showed that EGLE 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
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. We're going to take a look at the recent hedge fund action surrounding Eagle Bulk Shipping Inc. (NASDAQ:EGLE).
What does smart money think about Eagle Bulk Shipping Inc. (NASDAQ:EGLE)?
At Q2's end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EGLE over the last 16 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in Eagle Bulk Shipping Inc. (NASDAQ:EGLE) was held by Oaktree Capital Management, which reported holding $141.7 million worth of stock at the end of March. It was followed by GoldenTree Asset Management with a $73.3 million position. Other investors bullish on the company included Royce & Associates, Renaissance Technologies, and Two Sigma Advisors.
Seeing as Eagle Bulk Shipping Inc. (NASDAQ:EGLE) has faced falling interest from the aggregate hedge fund industry, it's easy to see that there was a specific group of hedge funds that decided to sell off their full holdings heading into Q3. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dropped the largest investment of the "upper crust" of funds followed by Insider Monkey, worth an estimated $0.5 million in call options, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund dumped about $0 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds heading into Q3.
Let's also examine hedge fund activity in other stocks similar to Eagle Bulk Shipping Inc. (NASDAQ:EGLE). These stocks are BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX), Avid Technology, Inc. (NASDAQ:AVID), Tower International Inc (NYSE:TOWR), and Willdan Group, Inc. (NASDAQ:WLDN). All of these stocks' market caps are closest to EGLE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BCRX,14,140524,-5 AVID,13,57223,-2 TOWR,9,32893,-4 WLDN,5,9498,-1 Average,10.25,60035,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $234 million in EGLE's case. BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) is the most popular stock in this table. On the other hand Willdan Group, Inc. (NASDAQ:WLDN) is the least popular one with only 5 bullish hedge fund positions. Eagle Bulk Shipping Inc. (NASDAQ:EGLE) 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 EGLE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EGLE investors were disappointed as the stock returned -16.4% 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.