It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Enova International Inc (NYSE:ENVA).
Enova International Inc (NYSE:ENVA) was in 20 hedge funds' portfolios at the end of March. ENVA has experienced a decrease in activity from the world's largest hedge funds lately. There were 23 hedge funds in our database with ENVA holdings at the end of the previous quarter. Our calculations also showed that enva isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We're going to take a peek at the key hedge fund action surrounding Enova International Inc (NYSE:ENVA).
How are hedge funds trading Enova International Inc (NYSE:ENVA)?
At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ENVA over the last 15 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Enova International Inc (NYSE:ENVA), with a stake worth $59 million reported as of the end of March. Trailing Renaissance Technologies was Prescott Group Capital Management, which amassed a stake valued at $23 million. 683 Capital Partners, Osterweis Capital Management, and Huber Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because Enova International Inc (NYSE:ENVA) has witnessed falling interest from hedge fund managers, it's safe to say that there exists a select few money managers who were dropping their entire stakes by the end of the third quarter. At the top of the heap, Louis Navellier's Navellier & Associates dropped the biggest position of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $1 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dumped its stock, about $0.7 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 3 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Enova International Inc (NYSE:ENVA) but similarly valued. These stocks are Och-Ziff Capital Management Group Inc. (NYSE:OZM), Seabridge Gold, Inc. (NYSE:SA), Falcon Minerals Corporation (NASDAQ:FLMN), and FARO Technologies, Inc. (NASDAQ:FARO). This group of stocks' market valuations are similar to ENVA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OZM,8,57143,-1 SA,8,36717,0 FLMN,17,137801,-1 FARO,7,39156,-1 Average,10,67704,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $157 million in ENVA's case. Falcon Minerals Corporation (NASDAQ:FLMN) is the most popular stock in this table. On the other hand FARO Technologies, Inc. (NASDAQ:FARO) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Enova International Inc (NYSE:ENVA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately ENVA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ENVA were disappointed as the stock returned -4.1% 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 in Q2.
Disclosure: None. This article was originally published at Insider Monkey.