Is Ellie Mae Inc (NYSE:ELLI) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy league graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Ellie Mae Inc (NYSE:ELLI) was in 15 hedge funds’ portfolios at the end of the third quarter of 2018. ELLI investors should be aware of an increase in hedge fund sentiment lately. There were 13 hedge funds in our database with ELLI holdings at the end of the previous quarter. Our calculations also showed that elli isn’t among the 30 most popular stocks among hedge funds.
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 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.
We’re going to take a glance at the new hedge fund action encompassing Ellie Mae Inc (NYSE:ELLI).
How have hedgies been trading Ellie Mae Inc (NYSE:ELLI)?
Heading into the fourth quarter of 2018, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ELLI over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Eminence Capital was the largest shareholder of Ellie Mae Inc (NYSE:ELLI), with a stake worth $194.5 million reported as of the end of September. Trailing Eminence Capital was Sylebra Capital Management, which amassed a stake valued at $133 million. Jericho Capital Asset Management, Citadel Investment Group, and HMI Capital were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, established the most outsized position in Ellie Mae Inc (NYSE:ELLI). Citadel Investment Group had $57 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $4.5 million investment in the stock during the quarter. The following funds were also among the new ELLI investors: Peter Seuss’s Prana Capital Management, Paul Tudor Jones’s Tudor Investment Corp, and Brandon Haley’s Holocene Advisors.
Let’s also examine hedge fund activity in other stocks similar to Ellie Mae Inc (NYSE:ELLI). These stocks are Guangshen Railway Co. Ltd (NYSE:GSH), ACI Worldwide Inc (NASDAQ:ACIW), GATX Corporation (NYSE:GATX), and Hillenbrand, Inc. (NYSE:HI). This group of stocks’ market valuations are similar to ELLI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GSH | 1 | 4749 | 0 |
| ACIW | 15 | 298192 | -2 |
| GATX | 11 | 267813 | 1 |
| HI | 20 | 73045 | 2 |
| Average | 11.75 | 160950 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $161 million. That figure was $613 million in ELLI’s case. Hillenbrand, Inc. (NYSE:HI) is the most popular stock in this table. On the other hand Guangshen Railway Co. Ltd (NYSE:GSH) is the least popular one with only 1 bullish hedge fund positions. Ellie Mae Inc (NYSE:ELLI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HI might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
