Is EnerSys (ENS) Going to Burn These Hedge Funds?

EnerSys (NYSE:ENS) investors should pay attention to a decrease in support from the world’s most elite money managers lately.

In the eyes of most traders, hedge funds are viewed as unimportant, old investment vehicles of years past. While there are greater than 8000 funds trading at present, we choose to focus on the crème de la crème of this group, around 450 funds. Most estimates calculate that this group has its hands on most of the hedge fund industry’s total asset base, and by paying attention to their best picks, we have unearthed a few investment strategies that have historically outperformed the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Just as important, optimistic insider trading activity is another way to parse down the financial markets. There are plenty of reasons for an executive to get rid of shares of his or her company, but only one, very clear reason why they would behave bullishly. Several empirical studies have demonstrated the useful potential of this tactic if you know what to do (learn more here).

Keeping this in mind, let’s take a gander at the recent action surrounding EnerSys (NYSE:ENS).

What have hedge funds been doing with EnerSys (NYSE:ENS)?

Heading into Q2, a total of 13 of the hedge funds we track were long in this stock, a change of -32% from one quarter earlier. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully.

Of the funds we track, Chuck Royce’s Royce & Associates had the biggest position in EnerSys (NYSE:ENS), worth close to $131.3 million, accounting for 0.4% of its total 13F portfolio. Sitting at the No. 2 spot is Martin Whitman of Third Avenue Management, with a $42.9 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Other peers that hold long positions include David Dreman’s Dreman Value Management, Philip Hempleman’s Ardsley Partners and Cliff Asness’s AQR Capital Management.

Because EnerSys (NYSE:ENS) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there were a few money managers that decided to sell off their positions entirely at the end of the first quarter. At the top of the heap, Peter Algert and Kevin Coldiron’s Algert Coldiron Investors dropped the biggest investment of all the hedgies we monitor, comprising about $4.3 million in stock.. Jim Simons’s fund, Renaissance Technologies, also sold off its stock, about $2.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds at the end of the first quarter.

How have insiders been trading EnerSys (NYSE:ENS)?

Insider trading activity, especially when it’s bullish, is most useful when the company we’re looking at has experienced transactions within the past six months. Over the last half-year time frame, EnerSys (NYSE:ENS) has seen zero unique insiders buying, and 2 insider sales (see the details of insider trades here).

Let’s go over hedge fund and insider activity in other stocks similar to EnerSys (NYSE:ENS). These stocks are Littelfuse, Inc. (NASDAQ:LFUS), Franklin Electric Co. (NASDAQ:FELE), Woodward Inc (NASDAQ:WWD), General Cable Corporation (NYSE:BGC), and Belden Inc. (NYSE:BDC). This group of stocks are the members of the industrial electrical equipment industry and their market caps resemble ENS’s market cap.