Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of Etsy Inc (NASDAQ:ETSY) based on that data.
Etsy Inc (NASDAQ:ETSY) has experienced an increase in hedge fund sentiment of late. Our calculations also showed that ETSY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to check out the key hedge fund action encompassing Etsy Inc (NASDAQ:ETSY).
What does smart money think about Etsy Inc (NASDAQ:ETSY)?
At Q3’s end, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in ETSY a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies has the biggest position in Etsy Inc (NASDAQ:ETSY), worth close to $410.6 million, accounting for 0.3% of its total 13F portfolio. On Renaissance Technologies’s heels is D E Shaw, led by David E. Shaw, holding a $142.6 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other peers that are bullish include Gabriel Plotkin’s Melvin Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors and Josh Resnick’s Jericho Capital Asset Management. In terms of the portfolio weights assigned to each position Half Sky Capital allocated the biggest weight to Etsy Inc (NASDAQ:ETSY), around 39.39% of its 13F portfolio. ThornTree Capital Partners is also relatively very bullish on the stock, setting aside 10.21 percent of its 13F equity portfolio to ETSY.
With a general bullishness amongst the heavyweights, key money managers have jumped into Etsy Inc (NASDAQ:ETSY) headfirst. Jericho Capital Asset Management, managed by Josh Resnick, created the most outsized position in Etsy Inc (NASDAQ:ETSY). Jericho Capital Asset Management had $66.5 million invested in the company at the end of the quarter. Eashwar Krishnan’s Tybourne Capital Management also made a $44.7 million investment in the stock during the quarter. The following funds were also among the new ETSY investors: Roberto Mignone’s Bridger Management, Gabriel Plotkin’s Melvin Capital Management, and Philippe Laffont’s Coatue Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Etsy Inc (NASDAQ:ETSY) but similarly valued. These stocks are Woodward Inc (NASDAQ:WWD), Commerce Bancshares, Inc. (NASDAQ:CBSH), Chemed Corporation (NYSE:CHE), and Donaldson Company, Inc. (NYSE:DCI). This group of stocks’ market caps resemble ETSY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WWD | 23 | 340865 | -5 |
| CBSH | 9 | 29611 | -2 |
| CHE | 20 | 388232 | -1 |
| DCI | 21 | 199801 | 5 |
| Average | 18.25 | 239627 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $240 million. That figure was $1224 million in ETSY’s case. Woodward Inc (NASDAQ:WWD) is the most popular stock in this table. On the other hand Commerce Bancshares, Inc. (NASDAQ:CBSH) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Etsy Inc (NASDAQ:ETSY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately ETSY wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ETSY were disappointed as the stock returned -5.9% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
