Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Envestnet Inc (NYSE:ENV) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is Envestnet Inc (NYSE:ENV) worth your attention right now? Investors who are in the know are turning bullish. The number of long hedge fund positions went up by 3 recently. Our calculations also showed that ENV isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). ENV was in 18 hedge funds’ portfolios at the end of December. There were 15 hedge funds in our database with ENV positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Atterbury of Whetstone Capital Advisors
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the key hedge fund action surrounding Envestnet Inc (NYSE:ENV).
What does smart money think about Envestnet Inc (NYSE:ENV)?
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ENV over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Envestnet Inc (NYSE:ENV) was held by York Capital Management, which reported holding $21 million worth of stock at the end of September. It was followed by Select Equity Group with a $15 million position. Other investors bullish on the company included Strycker View Capital, Whetstone Capital Advisors, and Osterweis Capital Management. In terms of the portfolio weights assigned to each position Strycker View Capital allocated the biggest weight to Envestnet Inc (NYSE:ENV), around 5.75% of its 13F portfolio. Whetstone Capital Advisors is also relatively very bullish on the stock, earmarking 3.29 percent of its 13F equity portfolio to ENV.
Consequently, some big names were leading the bulls’ herd. Strycker View Capital, managed by Usman Waheed, established the most outsized position in Envestnet Inc (NYSE:ENV). Strycker View Capital had $12.2 million invested in the company at the end of the quarter. John Osterweis’s Osterweis Capital Management also initiated a $3.8 million position during the quarter. The other funds with new positions in the stock are Lee Ainslie’s Maverick Capital, Dmitry Balyasny’s Balyasny Asset Management, and Qing Li’s Sciencast Management.
Let’s now take a look at hedge fund activity in other stocks similar to Envestnet Inc (NYSE:ENV). We will take a look at LivaNova PLC (NASDAQ:LIVN), Nevro Corp (NYSE:NVRO), Apple Hospitality REIT Inc (NYSE:APLE), and Terreno Realty Corporation (NYSE:TRNO). This group of stocks’ market valuations match ENV’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LIVN | 22 | 195956 | 5 |
| NVRO | 33 | 961499 | 11 |
| APLE | 15 | 135141 | 0 |
| TRNO | 14 | 32370 | 3 |
| Average | 21 | 331242 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $331 million. That figure was $86 million in ENV’s case. Nevro Corp (NYSE:NVRO) is the most popular stock in this table. On the other hand Terreno Realty Corporation (NYSE:TRNO) is the least popular one with only 14 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on ENV, though not to the same extent, as the stock returned -18.7% during the same time period and outperformed the market.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
