It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Essent Group Ltd (NYSE:ESNT).
Is Essent Group Ltd (NYSE:ESNT) undervalued? Investors who are in the know are taking a bearish view. The number of bullish hedge fund bets decreased by 7 recently. Our calculations also showed that ESNT 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.
In today’s marketplace there are a lot of tools stock traders use to grade their holdings. Two of the less known tools are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the best fund managers can beat their index-focused peers by a healthy amount (see the details here).
Noam Gottesman of GLG Partners
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s view the recent hedge fund action regarding Essent Group Ltd (NYSE:ESNT).
Hedge fund activity in Essent Group Ltd (NYSE:ESNT)
At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in ESNT a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Brian Ashford-Russell and Tim Woolley’s Polar Capital has the biggest position in Essent Group Ltd (NYSE:ESNT), worth close to $79.3 million, comprising 0.7% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $59.4 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish include Noam Gottesman’s GLG Partners, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Anand Parekh’s Alyeska Investment Group. In terms of the portfolio weights assigned to each position Waterstone Capital Management allocated the biggest weight to Essent Group Ltd (NYSE:ESNT), around 4.82% of its 13F portfolio. Ellington is also relatively very bullish on the stock, designating 0.79 percent of its 13F equity portfolio to ESNT.
Because Essent Group Ltd (NYSE:ESNT) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there were a few money managers that decided to sell off their entire stakes heading into Q4. At the top of the heap, Vivian Lau’s One Tusk Investment Partners sold off the biggest investment of the “upper crust” of funds tracked by Insider Monkey, totaling close to $10.1 million in stock, and Jeffrey Hinkle’s Shoals Capital Management was right behind this move, as the fund said goodbye to about $7 million worth. These transactions are important to note, as total hedge fund interest dropped by 7 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Essent Group Ltd (NYSE:ESNT) but similarly valued. These stocks are Penumbra Inc (NYSE:PEN), Air Lease Corp (NYSE:AL), Highwoods Properties Inc (NYSE:HIW), and Nuance Communications Inc. (NASDAQ:NUAN). This group of stocks’ market caps are similar to ESNT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PEN | 23 | 374880 | 4 |
| AL | 23 | 442179 | 5 |
| HIW | 20 | 220525 | 7 |
| NUAN | 27 | 741239 | -1 |
| Average | 23.25 | 444706 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $445 million. That figure was $302 million in ESNT’s case. Nuance Communications Inc. (NASDAQ:NUAN) is the most popular stock in this table. On the other hand Highwoods Properties Inc (NYSE:HIW) is the least popular one with only 20 bullish hedge fund positions. Essent Group Ltd (NYSE:ESNT) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on ESNT as the stock returned 14.6% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
