As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the second quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Essent Group Ltd (NYSE:ESNT).
Is Essent Group Ltd (NYSE:ESNT) an excellent investment right now? The smart money is taking an optimistic view. The number of bullish hedge fund positions improved by 3 in recent months. Our calculations also showed that ESNT isn’t among the 30 most popular stocks among hedge funds (view the video below). ESNT was in 30 hedge funds’ portfolios at the end of the second quarter of 2019. There were 27 hedge funds in our database with ESNT holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to go over the recent hedge fund action surrounding Essent Group Ltd (NYSE:ESNT).
Hedge fund activity in Essent Group Ltd (NYSE:ESNT)
Heading into the third quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in ESNT over the last 16 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Polar Capital was the largest shareholder of Essent Group Ltd (NYSE:ESNT), with a stake worth $77.5 million reported as of the end of March. Trailing Polar Capital was GLG Partners, which amassed a stake valued at $69.1 million. Renaissance Technologies, Arrowstreet Capital, and One Tusk Investment Partners were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, specific money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in Essent Group Ltd (NYSE:ESNT). Arrowstreet Capital had $29 million invested in the company at the end of the quarter. Peter Seuss’s Prana Capital Management also initiated a $1.3 million position during the quarter. The following funds were also among the new ESNT investors: Matthew Tewksbury’s Stevens Capital Management, Bruce Kovner’s Caxton Associates LP, and David Andre and Astro Teller’s Cerebellum Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Essent Group Ltd (NYSE:ESNT) but similarly valued. We will take a look at First Industrial Realty Trust, Inc. (NYSE:FR), Macerich Company (NYSE:MAC), Nuance Communications Inc. (NASDAQ:NUAN), and Prosperity Bancshares, Inc. (NYSE:PB). This group of stocks’ market caps are closest to ESNT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FR | 18 | 290383 | 7 |
| MAC | 21 | 288149 | -1 |
| NUAN | 28 | 529243 | 0 |
| PB | 16 | 107741 | 7 |
| Average | 20.75 | 303879 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $304 million. That figure was $326 million in ESNT’s case. Nuance Communications Inc. (NASDAQ:NUAN) is the most popular stock in this table. On the other hand Prosperity Bancshares, Inc. (NYSE:PB) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Essent Group Ltd (NYSE:ESNT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ESNT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ESNT were disappointed as the stock returned 1.8% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
