It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Envestnet Inc (NYSE:ENV).
Envestnet Inc (NYSE:ENV) was in 13 hedge funds’ portfolios at the end of June. ENV investors should be aware of a decrease in support from the world’s most elite money managers in recent months. There were 17 hedge funds in our database with ENV positions at the end of the previous quarter. Our calculations also showed that ENV isn’t among the 30 most popular stocks among hedge funds (view the video below).
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 former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. Let’s take a peek at the latest hedge fund action encompassing Envestnet Inc (NYSE:ENV).
What does smart money think about Envestnet Inc (NYSE:ENV)?
At Q2’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ENV over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Robert Joseph Caruso’s Select Equity Group has the most valuable position in Envestnet Inc (NYSE:ENV), worth close to $42.2 million, corresponding to 0.3% of its total 13F portfolio. The second largest stake is held by Greg Poole of Echo Street Capital Management, with a $28.6 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish consist of David Atterbury’s Whetstone Capital Advisors, Israel Englander’s Millennium Management and Ram Seshan Venkateswaran’s Vernier Capital.
Since Envestnet Inc (NYSE:ENV) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of fund managers who sold off their full holdings last quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group cut the largest investment of all the hedgies tracked by Insider Monkey, comprising about $7.8 million in stock. Ian Simm’s fund, Impax Asset Management, also sold off its stock, about $6.3 million worth. These moves are interesting, as total hedge fund interest was cut by 4 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Envestnet Inc (NYSE:ENV) but similarly valued. We will take a look at Parsons Corporation (NYSE:PSN), Alkermes Plc (NASDAQ:ALKS), Sabra Health Care REIT Inc (NASDAQ:SBRA), and UniFirst Corporation (NYSE:UNF). This group of stocks’ market values are similar to ENV’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PSN | 15 | 169178 | 15 |
| ALKS | 23 | 250921 | 1 |
| SBRA | 10 | 36381 | 1 |
| UNF | 23 | 182723 | 2 |
| Average | 17.75 | 159801 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $160 million. That figure was $107 million in ENV’s case. Alkermes Plc (NASDAQ:ALKS) is the most popular stock in this table. On the other hand Sabra Health Care REIT Inc (NASDAQ:SBRA) is the least popular one with only 10 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 ENV wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ENV investors were disappointed as the stock returned -17.1% 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 so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
