Do Hedge Funds Love Enerpac Tool Group Corp. (EPAC)?

In this article you are going to find out whether hedge funds think Enerpac Tool Group Corp. (NYSE:EPAC) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Enerpac Tool Group Corp. (NYSE:EPAC) was in 14 hedge funds’ portfolios at the end of March. EPAC has seen a decrease in enthusiasm from smart money of late. There were 20 hedge funds in our database with EPAC positions at the end of the previous quarter. Our calculations also showed that EPAC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 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.

Jeffrey Bronchick of Cove Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a peek at the key hedge fund action encompassing Enerpac Tool Group Corp. (NYSE:EPAC).

Hedge fund activity in Enerpac Tool Group Corp. (NYSE:EPAC)

At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -30% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in EPAC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Southeastern Asset Management was the largest shareholder of Enerpac Tool Group Corp. (NYSE:EPAC), with a stake worth $88.9 million reported as of the end of September. Trailing Southeastern Asset Management was Pzena Investment Management, which amassed a stake valued at $66.2 million. Cove Street Capital, Renaissance Technologies, and Gotham Asset Management 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 Southeastern Asset Management allocated the biggest weight to Enerpac Tool Group Corp. (NYSE:EPAC), around 2.11% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, designating 1.38 percent of its 13F equity portfolio to EPAC.

Because Enerpac Tool Group Corp. (NYSE:EPAC) has faced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of money managers that decided to sell off their positions entirely last quarter. It’s worth mentioning that Mason Hawkins’s Southeastern Asset Management dropped the biggest position of the “upper crust” of funds monitored by Insider Monkey, totaling close to $153.4 million in stock. Richard S. Pzena’s fund, Pzena Investment Management, also said goodbye to its stock, about $103.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 6 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Enerpac Tool Group Corp. (NYSE:EPAC). These stocks are Radware Ltd. (NASDAQ:RDWR), Materialise NV (NASDAQ:MTLS), CorVel Corporation (NASDAQ:CRVL), and Silk Road Medical, Inc. (NASDAQ:SILK). This group of stocks’ market caps are similar to EPAC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $171 million in EPAC’s case. CorVel Corporation (NASDAQ:CRVL) is the most popular stock in this table. On the other hand Materialise NV (NASDAQ:MTLS) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Enerpac Tool Group Corp. (NYSE:EPAC) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately EPAC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EPAC were disappointed as the stock returned 0.5% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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