Was The Smart Money Right About Etsy Inc (ETSY)?

In this article we will analyze whether Etsy Inc (NASDAQ:ETSY) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is Etsy Inc (NASDAQ:ETSY) a great investment today? The best stock pickers were becoming less confident. The number of bullish hedge fund bets retreated by 6 in recent months. Etsy Inc (NASDAQ:ETSY) was in 47 hedge funds’ portfolios at the end of June. The all time high for this statistic is 56. Our calculations also showed that ETSY isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Paul Marshall of Marshall Wace

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV 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. Now let’s go over the new hedge fund action regarding Etsy Inc (NASDAQ:ETSY).

Do Hedge Funds Think ETSY Is A Good Stock To Buy Now?

At Q2’s end, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the first quarter of 2020. On the other hand, there were a total of 43 hedge funds with a bullish position 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.

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the biggest position in Etsy Inc (NASDAQ:ETSY). Renaissance Technologies has a $362.9 million position in the stock, comprising 0.5% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, managed by Ken Griffin, which holds a $283.1 million call position; 0.1% of its 13F portfolio is allocated to the stock. Some other members of the smart money that are bullish include John Overdeck and David Siegel’s Two Sigma Advisors, Edward Goodnow’s Goodnow Investment Group and Paul Marshall and Ian Wace’s Marshall Wace LLP. In terms of the portfolio weights assigned to each position Goodnow Investment Group allocated the biggest weight to Etsy Inc (NASDAQ:ETSY), around 13.27% of its 13F portfolio. Half Sky Capital is also relatively very bullish on the stock, dishing out 12.82 percent of its 13F equity portfolio to ETSY.

Due to the fact that Etsy Inc (NASDAQ:ETSY) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of money managers that slashed their positions entirely last quarter. At the top of the heap, Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management cut the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $108.9 million in stock, and Steve Zheng’s Deepcurrents Investment Group was right behind this move, as the fund sold off about $11.3 million worth. These moves are interesting, as total hedge fund interest was cut by 6 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Etsy Inc (NASDAQ:ETSY) but similarly valued. We will take a look at Generac Holdings Inc. (NYSE:GNRC), Slack Technologies Inc (NYSE:WORK), Hormel Foods Corporation (NYSE:HRL), Weyerhaeuser Co. (NYSE:WY), Kansas City Southern (NYSE:KSU), Teladoc Health, Inc (NYSE:TDOC), and Verisign, Inc. (NASDAQ:VRSN). This group of stocks’ market values resemble ETSY’s market value.

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As you can see these stocks had an average of 43.9 hedge funds with bullish positions and the average amount invested in these stocks was $2875 million. That figure was $1732 million in ETSY’s case. Slack Technologies Inc (NYSE:WORK) is the most popular stock in this table. On the other hand Hormel Foods Corporation (NYSE:HRL) is the least popular one with only 24 bullish hedge fund positions. Etsy Inc (NASDAQ:ETSY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ETSY is 55.3. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Hedge funds were also right about betting on ETSY as the stock returned 26.4% since the end of Q2 (through 11/5) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.