How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding ChannelAdvisor Corp (NYSE:ECOM) and determine whether hedge funds had an edge regarding this stock.
ChannelAdvisor Corp (NYSE:ECOM) has experienced a decrease in activity from the world’s largest hedge funds of late. ECOM was in 11 hedge funds’ portfolios at the end of March. There were 12 hedge funds in our database with ECOM positions at the end of the previous quarter. Our calculations also showed that ECOM 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.
In the eyes of most investors, hedge funds are viewed as slow, outdated investment tools of yesteryear. While there are more than 8000 funds trading at present, Our experts look at the bigwigs of this club, around 850 funds. These money managers watch over the lion’s share of all hedge funds’ total asset base, and by paying attention to their finest picks, Insider Monkey has identified many investment strategies that have historically outrun Mr. Market. Insider Monkey’s flagship short hedge fund strategy outperformed 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 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Paul Marshall of Marshall Wace
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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. With all of this in mind let’s take a look at the key hedge fund action regarding ChannelAdvisor Corp (NYSE:ECOM).
How have hedgies been trading ChannelAdvisor Corp (NYSE:ECOM)?
At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in ECOM a year ago. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, Altai Capital held the most valuable stake in ChannelAdvisor Corp (NYSE:ECOM), which was worth $13.2 million at the end of the third quarter. On the second spot was D E Shaw which amassed $4.5 million worth of shares. Renaissance Technologies, Arrowstreet Capital, and Marshall Wace LLP 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 Altai Capital allocated the biggest weight to ChannelAdvisor Corp (NYSE:ECOM), around 22.82% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, setting aside 0.43 percent of its 13F equity portfolio to ECOM.
Due to the fact that ChannelAdvisor Corp (NYSE:ECOM) has faced declining sentiment from the smart money, it’s safe to say that there exists a select few fund managers that elected to cut their full holdings heading into Q4. Interestingly, Cliff Asness’s AQR Capital Management cut the largest stake of the 750 funds followed by Insider Monkey, valued at an estimated $0.5 million in stock. Peter Muller’s fund, PDT Partners, also said goodbye to its stock, about $0.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to ChannelAdvisor Corp (NYSE:ECOM). We will take a look at Glory Star New Media Group Holdings Limited (NASDAQ:GSMG), Ciner Resources LP (NYSE:CINR), Antero Resources Corp (NYSE:AR), and Howard Bancorp Inc (NASDAQ:HBMD). This group of stocks’ market caps resemble ECOM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GSMG | 9 | 1738 | -1 |
| CINR | 1 | 1865 | -1 |
| AR | 21 | 51307 | -4 |
| HBMD | 6 | 10753 | 3 |
| Average | 9.25 | 16416 | -0.75 |
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 $16 million. That figure was $28 million in ECOM’s case. Antero Resources Corp (NYSE:AR) is the most popular stock in this table. On the other hand Ciner Resources LP (NYSE:CINR) is the least popular one with only 1 bullish hedge fund positions. ChannelAdvisor Corp (NYSE:ECOM) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on ECOM as the stock returned 118.2% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
