Were Hedge Funds Right About Energy Recovery, Inc. (ERII)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Energy Recovery, Inc. (NASDAQ:ERII) in this article.

Energy Recovery, Inc. (NASDAQ:ERII) investors should pay attention to an increase in hedge fund interest in recent months. Energy Recovery, Inc. (NASDAQ:ERII) was in 16 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 16. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 11 hedge funds in our database with ERII holdings at the end of December. Our calculations also showed that ERII isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

If you’d ask most stock holders, hedge funds are assumed to be underperforming, old investment tools of years past. While there are more than 8000 funds trading today, We look at the moguls of this group, around 850 funds. These investment experts watch over the majority of all hedge funds’ total asset base, and by tracking their finest investments, Insider Monkey has formulated many investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

David E. Shaw of D.E. Shaw

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

At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 45% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in ERII 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.

The largest stake in Energy Recovery, Inc. (NASDAQ:ERII) was held by Trigran Investments, which reported holding $74.4 million worth of stock at the end of December. It was followed by Portolan Capital Management with a $6.5 million position. Other investors bullish on the company included Arrowstreet Capital, Citadel Investment Group, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Trigran Investments allocated the biggest weight to Energy Recovery, Inc. (NASDAQ:ERII), around 9.19% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, earmarking 0.51 percent of its 13F equity portfolio to ERII.

As industrywide interest jumped, specific money managers were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the biggest position in Energy Recovery, Inc. (NASDAQ:ERII). Marshall Wace LLP had $0.9 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.7 million position during the quarter. The following funds were also among the new ERII investors: D. E. Shaw’s D E Shaw, Israel Englander’s Millennium Management, and Renaissance Technologies.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Energy Recovery, Inc. (NASDAQ:ERII) but similarly valued. We will take a look at IES Holdings, Inc. (NASDAQ:IESC), Sutro Biopharma, Inc. (NASDAQ:STRO), New Gold Inc. (NYSE:NGD), SI-BONE, Inc. (NASDAQ:SIBN), Gol Linhas Aereas Inteligentes SA (NYSE:GOL), SilverCrest Metals Inc. (NYSE:SILV), and PyroGenesis Canada Inc. (NASDAQ:PYR). This group of stocks’ market values resemble ERII’s market value.

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As you can see these stocks had an average of 14.6 hedge funds with bullish positions and the average amount invested in these stocks was $195 million. That figure was $98 million in ERII’s case. Sutro Biopharma, Inc. (NASDAQ:STRO) is the most popular stock in this table. On the other hand PyroGenesis Canada Inc. (NASDAQ:PYR) is the least popular one with only 3 bullish hedge fund positions. Energy Recovery, Inc. (NASDAQ:ERII) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ERII is 66. 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 28.5% in 2021 through July 23rd and still beat the market by 10.1 percentage points. Hedge funds were also right about betting on ERII, though not to the same extent, as the stock returned 12.4% since Q1 (through July 23rd) and outperformed the market as well.

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

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