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Were Hedge Funds Right About Eldorado Gold Corp (EGO)?

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  • EGO

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). 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 Eldorado Gold Corp (NYSE:EGO).

Eldorado Gold Corp (NYSE:EGO) shareholders have witnessed an increase in support from the world's most elite money managers of late. Eldorado Gold Corp (NYSE:EGO) was in 16 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 20. There were 14 hedge funds in our database with EGO positions at the end of the fourth quarter. Our calculations also showed that EGO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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' 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 S&P 500 ETFs by 115 percentage points since March 2017 (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.

Donald Sussman Paloma Partners
Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's view the latest hedge fund action encompassing Eldorado Gold Corp (NYSE:EGO).

Do Hedge Funds Think EGO Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the fourth quarter of 2020. By comparison, 14 hedge funds held shares or bullish call options in EGO a year ago. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

More specifically, Lansdowne Partners was the largest shareholder of Eldorado Gold Corp (NYSE:EGO), with a stake worth $61.1 million reported as of the end of March. Trailing Lansdowne Partners was Renaissance Technologies, which amassed a stake valued at $58.5 million. Weiss Asset Management, Millennium Management, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lansdowne Partners allocated the biggest weight to Eldorado Gold Corp (NYSE:EGO), around 1.99% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, dishing out 0.42 percent of its 13F equity portfolio to EGO.

As aggregate interest increased, key hedge funds were breaking ground themselves. Invenomic Capital Management, managed by Ali Motamed, created the biggest position in Eldorado Gold Corp (NYSE:EGO). Invenomic Capital Management had $1.9 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $0.7 million investment in the stock during the quarter. The only other fund with a brand new EGO position is Donald Sussman's Paloma Partners.

Let's now take a look at hedge fund activity in other stocks similar to Eldorado Gold Corp (NYSE:EGO). We will take a look at Seres Therapeutics Inc (NASDAQ:MCRB), Retail Opportunity Investments Corp (NASDAQ:ROIC), Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY), PROS Holdings, Inc. (NYSE:PRO), SM Energy Company (NYSE:SM), Sundial Growers Inc. (NASDAQ:SNDL), and At Home Group Inc. (NYSE:HOME). This group of stocks' market caps are closest to EGO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MCRB,19,390565,2 ROIC,18,56076,1 HRMY,10,178876,2 PRO,12,268268,-8 SM,16,237416,-4 SNDL,7,18832,5 HOME,30,806839,-1 Average,16,279553,-0.4 [/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 $280 million. That figure was $165 million in EGO's case. At Home Group Inc. (NYSE:HOME) is the most popular stock in this table. On the other hand Sundial Growers Inc. (NASDAQ:SNDL) is the least popular one with only 7 bullish hedge fund positions. Eldorado Gold Corp (NYSE:EGO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EGO is 50.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately EGO wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); EGO investors were disappointed as the stock returned -14.7% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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Disclosure: None. This article was originally published at Insider Monkey.