How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Etsy Inc (NASDAQ:ETSY).
Is ETSY stock a buy or sell? Hedge funds were in an optimistic mood. The number of bullish hedge fund bets moved up by 5 lately. Etsy Inc (NASDAQ:ETSY) was in 56 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 51. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ETSY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 51 hedge funds in our database with ETSY positions at the end of the third quarter.
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).
Glen Kacher of Light Street Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage (or at the end of this article). Keeping this in mind let’s check out the new hedge fund action encompassing Etsy Inc (NASDAQ:ETSY).
Do Hedge Funds Think ETSY Is A Good Stock To Buy Now?
At fourth quarter’s end, a total of 56 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from one quarter earlier. By comparison, 46 hedge funds held shares or bullish call options in ETSY a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Etsy Inc (NASDAQ:ETSY), with a stake worth $681.4 million reported as of the end of December. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $272.6 million. Goodnow Investment Group, HMI Capital, and Light Street Capital 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 Goodnow Investment Group allocated the biggest weight to Etsy Inc (NASDAQ:ETSY), around 16.27% of its 13F portfolio. Emerson Point Capital is also relatively very bullish on the stock, setting aside 5.7 percent of its 13F equity portfolio to ETSY.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, established the largest position in Etsy Inc (NASDAQ:ETSY). LMR Partners had $22.3 million invested in the company at the end of the quarter. Steve Zheng’s Deepcurrents Investment Group also initiated a $12 million position during the quarter. The other funds with brand new ETSY positions are Phill Gross and Robert Atchinson’s Adage Capital Management, Kamyar Khajavi’s MIK Capital, and Eduardo Costa’s Calixto Global Investors.
Let’s check out hedge fund activity in other stocks similar to Etsy Inc (NASDAQ:ETSY). These stocks are AvalonBay Communities Inc (NYSE:AVB), China Telecom Corporation Limited (NYSE:CHA), Enphase Energy Inc (NASDAQ:ENPH), Equity Residential (NYSE:EQR), Arista Networks Inc (NYSE:ANET), Nokia Corporation (NYSE:NOK), and W.W. Grainger, Inc. (NYSE:GWW). This group of stocks’ market values resemble ETSY’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AVB | 32 | 864498 | 3 |
| CHA | 5 | 19901 | 2 |
| ENPH | 48 | 988127 | 6 |
| EQR | 28 | 557427 | 1 |
| ANET | 35 | 396873 | 8 |
| NOK | 19 | 186378 | -2 |
| GWW | 30 | 507444 | 2 |
| Average | 28.1 | 502950 | 2.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.1 hedge funds with bullish positions and the average amount invested in these stocks was $503 million. That figure was $1963 million in ETSY’s case. Enphase Energy Inc (NASDAQ:ENPH) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Etsy Inc (NASDAQ:ETSY) is more popular among hedge funds. Our overall hedge fund sentiment score for ETSY is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 5.3% in 2021 through March 19th but still managed to beat the market by 0.8 percentage points. Hedge funds were also right about betting on ETSY as the stock returned 21.1% since the end of December (through 3/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
