As we already know from media reports and hedge fund investor letters, many hedge funds lost money in October, blaming macroeconomic conditions and unpredictable events that hit several sectors, with healthcare among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about Envestnet Inc (NYSE:ENV) in this article.
Envestnet Inc (NYSE:ENV) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds’ portfolios at the end of September. At the end of this article we will also compare ENV to other stocks including Banco Macro SA (NYSE:BMA), SeaWorld Entertainment Inc (NYSE:SEAS), and Diamond Offshore Drilling Inc (NYSE:DO) to get a better sense of its popularity.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a glance at the fresh hedge fund action encompassing Envestnet Inc (NYSE:ENV).
How are hedge funds trading Envestnet Inc (NYSE:ENV)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, no change from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ENV over the last 13 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Echo Street Capital Management held the most valuable stake in Envestnet Inc (NYSE:ENV), which was worth $17.9 million at the end of the third quarter. On the second spot was Impax Asset Management which amassed $16.8 million worth of shares. Moreover, Millennium Management, Whetstone Capital Advisors, and Renaissance Technologies were also bullish on Envestnet Inc (NYSE:ENV), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Envestnet Inc (NYSE:ENV) has faced declining sentiment from hedge fund managers, we can see that there was a specific group of money managers who were dropping their full holdings heading into Q3. Interestingly, Ken Griffin’s Citadel Investment Group cut the biggest position of the “upper crust” of funds watched by Insider Monkey, totaling close to $21.6 million in stock. Nick Niell’s fund, Arrowgrass Capital Partners, also dumped its stock, about $0.7 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Envestnet Inc (NYSE:ENV) but similarly valued. These stocks are Banco Macro SA (NYSE:BMA), SeaWorld Entertainment Inc (NYSE:SEAS), Diamond Offshore Drilling Inc (NYSE:DO), and Murphy USA Inc. (NYSE:MUSA). This group of stocks’ market caps resemble ENV’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BMA | 12 | 118446 | -4 |
| SEAS | 22 | 375366 | 6 |
| DO | 19 | 103453 | 0 |
| MUSA | 19 | 173066 | 3 |
| Average | 18 | 192583 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $193 million. That figure was $71 million in ENV’s case. SeaWorld Entertainment Inc (NYSE:SEAS) is the most popular stock in this table. On the other hand Banco Macro SA (NYSE:BMA) is the least popular one with only 12 bullish hedge fund positions. Envestnet Inc (NYSE:ENV) 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. In this regard SEAS might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
