Essent Group Ltd (ESNT): Are Hedge Funds Right About This Stock?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The time period between June 25 and the end of October was one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually, their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Essent Group Ltd (NYSE:ESNT).

Essent Group Ltd (NYSE:ESNT) has experienced an increase in activity from the world’s largest hedge funds lately. ESNT was in 21 hedge funds’ portfolios at the end of the third quarter of 2015. There were 19 hedge funds in our database with ESNT holdings at the end of the previous quarter. 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 BancorpSouth, Inc. (NYSE:BXS), Valley National Bancorp (NYSE:VLY), and CEB Inc (NYSE:CEB) to gather more data points.

To the average investor, there are a multitude of metrics stock traders use to evaluate their holdings. A duo of the most useful metrics are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the best investment managers can outclass the market by a very impressive amount (see the details here).

Keeping this in mind, we’re going to view the new action regarding Essent Group Ltd (NYSE:ESNT).

What does the smart money think about Essent Group Ltd (NYSE:ESNT)?

At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, up by 11% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, George Soros’ Soros Fund Management holds the largest position in Essent Group Ltd (NYSE:ESNT) valued at $74.1 million and comprising 1.1% of its 13F portfolio. On Soros Fund Management’s heels is Ken Griffin of Citadel Investment Group, with a $61 million position; 0.1% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism encompass Neil Chriss’s Hutchin Hill Capital, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the most outsized position in Essent Group Ltd (NYSE:ESNT). According to its latest 13F filing, the fund had $16.4 million invested in the company at the end of the quarter. Jacob Gottlieb’s Visium Asset Management also initiated a $1.8 million position during the quarter. The following funds were also among the new ESNT investors: George Hall’s Clinton Group and Mike Vranos’s Ellington.

Let’s now review hedge fund activity in other stocks similar to Essent Group Ltd (NYSE:ESNT). We will take a look at BancorpSouth, Inc. (NYSE:BXS), Valley National Bancorp (NYSE:VLY), CEB Inc (NYSE:CEB), and Taylor Morrison Home Corp (NYSE:TMHC). This group of stocks’ market valuations resemble ESNT’s market valuation.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $102 million. Taylor Morrison Home Corp (NYSE:TMHC) is the most popular stock in this table. On the other hand BancorpSouth, Inc. (NYSE:BXS) is the least popular one with only 10 bullish hedge fund positions. With 21 long hedge fund positions, Essent Group Ltd (NYSE:ESNT) wins this popularity contest having also attracted a lot more of the hedgies’ money: $295 million at the end of the quarter. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.