Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Era Group Inc (NYSE:ERA) and see how the stock is affected by the recent hedge fund activity.
Era Group Inc (NYSE:ERA) shareholders have witnessed an increase in hedge fund interest in recent months. Our calculations also showed that ERA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a glance at the recent hedge fund action regarding Era Group Inc (NYSE:ERA).
How have hedgies been trading Era Group Inc (NYSE:ERA)?
Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in ERA a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Era Group Inc (NYSE:ERA), with a stake worth $17.5 million reported as of the end of September. Trailing Royce & Associates was D E Shaw, which amassed a stake valued at $1.9 million. Citadel Investment Group, Millennium Management, and Redwood Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Era Group Inc (NYSE:ERA), around 0.16% of its 13F portfolio. Redwood Capital Management is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to ERA.
With a general bullishness amongst the heavyweights, key money managers have jumped into Era Group Inc (NYSE:ERA) headfirst. Citadel Investment Group, managed by Ken Griffin, initiated the largest position in Era Group Inc (NYSE:ERA). Citadel Investment Group had $0.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.3 million investment in the stock during the quarter. The only other fund with a brand new ERA position is Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Era Group Inc (NYSE:ERA) but similarly valued. We will take a look at ProQR Therapeutics NV (NASDAQ:PRQR), Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC), CBL & Associates Properties, Inc. (NYSE:CBL), and Sportsman’s Warehouse Holdings Inc (NASDAQ:SPWH). This group of stocks’ market valuations are similar to ERA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PRQR | 8 | 33544 | -1 |
| NGVC | 9 | 13308 | -3 |
| CBL | 15 | 23460 | 6 |
| SPWH | 21 | 42790 | 5 |
| Average | 13.25 | 28276 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $20 million in ERA’s case. Sportsman’s Warehouse Holdings Inc (NASDAQ:SPWH) is the most popular stock in this table. On the other hand ProQR Therapeutics NV (NASDAQ:PRQR) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Era Group Inc (NYSE:ERA) is even less popular than PRQR. Hedge funds dodged a bullet by taking a bearish stance towards ERA. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ERA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ERA investors were disappointed as the stock returned -9.4% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
