Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. Is Callaway Golf Company (NYSE:ELY) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Callaway Golf Company (NYSE:ELY) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of December. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Walker & Dunlop Inc. (NYSE:WD), Bank of N.T. Butterfield & Son Limited (The) (NYSE:NTB), and Cardtronics plc (NASDAQ:CATM) to gather more data points. Our calculations also showed that ELY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the eyes of most stock holders, hedge funds are viewed as unimportant, outdated investment tools of the past. While there are over 8000 funds in operation today, We hone in on the masters of this group, about 850 funds. Most estimates calculate that this group of people administer the majority of the hedge fund industry’s total asset base, and by tailing their inimitable equity investments, Insider Monkey has come up with a few investment strategies that have historically exceeded Mr. Market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Jonathan Barrett of Luminus Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to analyze the recent hedge fund action regarding Callaway Golf Company (NYSE:ELY).
How are hedge funds trading Callaway Golf Company (NYSE:ELY)?
Heading into the first quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in ELY over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Callaway Golf Company (NYSE:ELY) was held by JANA Partners, which reported holding $166.5 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $24.7 million position. Other investors bullish on the company included Driehaus Capital, 13D Management, and Millennium Management. In terms of the portfolio weights assigned to each position JANA Partners allocated the biggest weight to Callaway Golf Company (NYSE:ELY), around 13.87% of its 13F portfolio. Empirical Capital Partners is also relatively very bullish on the stock, designating 10.14 percent of its 13F equity portfolio to ELY.
Because Callaway Golf Company (NYSE:ELY) has faced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there were a few hedge funds that elected to cut their full holdings heading into Q4. At the top of the heap, Douglas Dethy’s DC Capital Partners said goodbye to the largest investment of the “upper crust” of funds monitored by Insider Monkey, comprising close to $9.7 million in stock. Sander Gerber’s fund, Hudson Bay Capital Management, also cut its stock, about $4.9 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Callaway Golf Company (NYSE:ELY) but similarly valued. We will take a look at Walker & Dunlop Inc. (NYSE:WD), Bank of N.T. Butterfield & Son Limited (The) (NYSE:NTB), Cardtronics plc (NASDAQ:CATM), and Adient plc (NYSE:ADNT). This group of stocks’ market caps resemble ELY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WD | 25 | 101505 | 9 |
| NTB | 17 | 149206 | 2 |
| CATM | 22 | 554249 | 1 |
| ADNT | 36 | 521141 | 9 |
| Average | 25 | 331525 | 5.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $332 million. That figure was $270 million in ELY’s case. Adient plc (NYSE:ADNT) is the most popular stock in this table. On the other hand Bank of N.T. Butterfield & Son Limited (The) (NYSE:NTB) is the least popular one with only 17 bullish hedge fund positions. Callaway Golf Company (NYSE:ELY) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately ELY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ELY investors were disappointed as the stock returned -50.1% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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.
