Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Echo Global Logistics, Inc. (NASDAQ:ECHO).
Is Echo Global Logistics, Inc. (NASDAQ:ECHO) a good stock to buy now? The smart money is indeed becoming less confident. The number of long hedge fund investments suffered a reduction of 1 recently. There were 10 hedge funds in our database with ECHO positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as CommerceHub Inc (NASDAQ:CHUBA), Heron Therapeutics Inc (NASDAQ:HRTX), and Rent-A-Center Inc (NASDAQ:RCII) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Now, let’s check out the recent action regarding Echo Global Logistics, Inc. (NASDAQ:ECHO).
How have hedgies been trading Echo Global Logistics, Inc. (NASDAQ:ECHO)?
Heading into the fourth quarter of 2016, nine funds tracked by Insider Monkey held long positions in this stock, down by 10% from the end of the second quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in ECHO at the beginning of this year. So, let’s find 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, Ken Griffin’s Citadel Investment Group holds the most valuable position in Echo Global Logistics, Inc. (NASDAQ:ECHO). Citadel Investment Group has a $14.7 million position in the stock. The second most bullish fund is Malcolm Fairbairn’s Ascend Capital, with a $14.5 million position. Some other professional money managers with similar optimism include Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, Amy Minella’s Cardinal Capital, and Matthew Hulsizer’s PEAK6 Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Due to the fact that Echo Global Logistics, Inc. (NASDAQ:ECHO) has weathered falling interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of funds that decided to sell off their entire stakes last quarter. Intriguingly, Richard Driehaus’ Driehaus Capital said goodbye to the largest investment of all the investors monitored by Insider Monkey, comprising an estimated $2.5 million in stock. Richard Chilton’s fund, Chilton Investment Company, also cut its stock, about $1.5 million worth.
Let’s now take a look at hedge fund activity in other stocks similar to Echo Global Logistics, Inc. (NASDAQ:ECHO). These stocks are CommerceHub Inc (NASDAQ:CHUBA), Heron Therapeutics Inc (NASDAQ:HRTX), Rent-A-Center Inc (NASDAQ:RCII), and Capella Education Company (NASDAQ:CPLA). This group of stocks’ market valuations match ECHO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CHUBA | 18 | 39195 | 18 |
| HRTX | 12 | 379923 | 2 |
| RCII | 18 | 73846 | -1 |
| CPLA | 15 | 138859 | -2 |
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $38 million in ECHO’s case. CommerceHub Inc (NASDAQ:CHUBA) and Rent-A-Center Inc (NASDAQ:RCII) are the most popular stocks in this table. On the other hand Heron Therapeutics Inc (NASDAQ:HRTX) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Echo Global Logistics, Inc. (NASDAQ:ECHO) is even less popular than HRTX. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None
