Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the fourth quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Encore Capital Group, Inc. (NASDAQ:ECPG) changed recently.
Hedge fund interest in Encore Capital Group, Inc. (NASDAQ:ECPG) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ECPG to other stocks including NorthStar Realty Europe Corp. (NYSE:NRE), Extreme Networks, Inc (NASDAQ:EXTR), and Wabash National Corporation (NYSE:WNC) to get a better sense of its popularity.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to take a gander at the recent hedge fund action regarding Encore Capital Group, Inc. (NASDAQ:ECPG).
Hedge fund activity in Encore Capital Group, Inc. (NASDAQ:ECPG)
Heading into the first quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in ECPG a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, BloombergSen was the largest shareholder of Encore Capital Group, Inc. (NASDAQ:ECPG), with a stake worth $16.7 million reported as of the end of December. Trailing BloombergSen was Second Curve Capital, which amassed a stake valued at $12.1 million. Millennium Management, Red Mountain Capital, and Corsair Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Encore Capital Group, Inc. (NASDAQ:ECPG) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of fund managers who sold off their positions entirely by the end of the third quarter. At the top of the heap, Israel Englander’s Millennium Management dumped the largest stake of all the hedgies tracked by Insider Monkey, comprising close to $2.6 million in call options, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund said goodbye to about $0.9 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Encore Capital Group, Inc. (NASDAQ:ECPG). These stocks are NorthStar Realty Europe Corp. (NYSE:NRE), Extreme Networks, Inc (NASDAQ:EXTR), Wabash National Corporation (NYSE:WNC), and Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX). This group of stocks’ market values are closest to ECPG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NRE | 13 | 108420 | -2 |
| EXTR | 20 | 71221 | 1 |
| WNC | 20 | 70898 | 7 |
| CRNX | 7 | 320479 | -2 |
| Average | 15 | 142755 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $143 million. That figure was $38 million in ECPG’s case. Extreme Networks, Inc (NASDAQ:EXTR) is the most popular stock in this table. On the other hand Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX) is the least popular one with only 7 bullish hedge fund positions. Encore Capital Group, Inc. (NASDAQ:ECPG) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on ECPG, though not to the same extent, as the stock returned 23.6% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
