We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Enstar Group Ltd. (NASDAQ:ESGR).
Hedge fund interest in Enstar Group Ltd. (NASDAQ:ESGR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ESGR to other stocks including GrubHub Inc (NYSE:GRUB), VEON Ltd. (NASDAQ:VEON), and Cyberark Software Ltd (NASDAQ:CYBR) to get a better sense of its popularity.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_337892" align="aligncenter" width="400"] Lei Zhang of Hillhouse Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's view the latest hedge fund action regarding Enstar Group Ltd. (NASDAQ:ESGR).
How are hedge funds trading Enstar Group Ltd. (NASDAQ:ESGR)?
Heading into the first quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in ESGR a year ago. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, Hillhouse Capital Management held the most valuable stake in Enstar Group Ltd. (NASDAQ:ESGR), which was worth $361.6 million at the end of the third quarter. On the second spot was Diamond Hill Capital which amassed $53.6 million worth of shares. Renaissance Technologies, Winton Capital Management, and GLG Partners 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 Hillhouse Capital Management allocated the biggest weight to Enstar Group Ltd. (NASDAQ:ESGR), around 4.5% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, designating 0.27 percent of its 13F equity portfolio to ESGR.
Because Enstar Group Ltd. (NASDAQ:ESGR) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain "tier" of hedgies who were dropping their entire stakes last quarter. Interestingly, Israel Englander's Millennium Management cut the largest investment of the 750 funds watched by Insider Monkey, totaling an estimated $7.5 million in stock, and Roger Ibbotson's Zebra Capital Management was right behind this move, as the fund dumped about $1.1 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Enstar Group Ltd. (NASDAQ:ESGR). We will take a look at GrubHub Inc (NYSE:GRUB), VEON Ltd. (NASDAQ:VEON), Cyberark Software Ltd (NASDAQ:CYBR), and Lancaster Colony Corporation (NASDAQ:LANC). All of these stocks' market caps are closest to ESGR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GRUB,33,527926,8 VEON,11,65909,0 CYBR,20,210449,-1 LANC,16,203540,-10 Average,20,251956,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $252 million. That figure was $440 million in ESGR's case. GrubHub Inc (NYSE:GRUB) is the most popular stock in this table. On the other hand VEON Ltd. (NASDAQ:VEON) is the least popular one with only 11 bullish hedge fund positions. Enstar Group Ltd. (NASDAQ:ESGR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately ESGR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ESGR investors were disappointed as the stock returned -29.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.